Debit or Credit?

“Debit or credit?” is kind of a trick question. It seems like it should only have two answers (I mean there’s two options in the question, right?). But really, you have three options when it comes to paying with a card at the register. If I just confused you, don’t worry, I can explain.

To start with, remember the basic differences between your debit card and credit card. Debit cards are linked directly to your checking account. They take the place of cash or a check and the money comes directly out of your checking account. Credit cards are a line-of-credit from your credit card company. They are basically lending you money to make purchases up to a certain credit limit, then you pay them back later with interest.

But “debit or credit?” isn’t just a question about which physical card you want to pay with, it’s asking you how you want your transaction to be processed. That’s where the three choices come in. They are:

DEBIT AS DEBIT

In this option you:

  • Swipe you debit card and enter your PIN number.
  • The transaction posts immediately from your checking account (meaning the money is withdrawn from your account in real time).

CREDIT AS CREDIT

In this option you:

  • Swipe your credit card and sign for the transaction.
  • Your credit card company pays for the transaction, you have not yet paid for this item.
  • Your credit card company charges you interest on the balance of your card. You must pay back your balance in monthly installments.

DEBIT AS CREDIT

In this option you:

  • Swipe you debit card and sign for the transaction.
  • The transaction typically takes 1 – 2 days to post in you checking account. The length of time it takes to post is dependent on the merchant, not on your bank or credit union.

This third option is the one people most commonly forget about. Just because you used your debit card does NOT mean that your transaction was processed as debit. The key thing to remember is, unless you entered a PIN, the transaction was done as credit.

So let’s say you went through the Dunkin’ Donuts drive-thru to get your morning coffee. They grabbed your debit card, swiped it, and passed it was to you. That was a credit transaction because you didn’t enter a PIN. You might not see that $2 being withdrawn from your account for a day or two, so don’t forget about that transaction when you check your available balance. What your mobile banking shows for your balance might not include transactions run as credit!

Next trick question – “Is one way of using a card better than the others?” The simple answer is – not really. There are benefits and drawbacks to all three options, so the best answer is to do whatever is most convenient for you. As a credit union member and employee however, I will point out that your credit union benefits more from debit as credit transactions than the other two options, so if you want to help out your financial institution I encourage you to swipe and sign with your debit card!

I hope this post helps you feel more confident about your answer the next time you’re at the register. 🙂

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4 thoughts on “Debit or Credit?

  1. I’d go with credit, you can earn points from your credit card company and essentially have 30 days of interest free money when you pay your balance every month. When you take into account inflation you’re saving approximately 2% (yearly inflation) /12 months = 0.25% per month your by choosing this option rather than dipping into your direct cash line (debit)

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