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When credit is better than debit.


When rebuilding after bankruptcy, you're going to hear the word "cash" a lot. The idea, in most cases, is for you to avoid using credit. (Not everyone has a lot of choice in the matter, as your credit rating may not allow it.) However, it doesn't take long to bounce back and credit card companies are introducing a number of plastic options that can limit your balances and restrict spending. In place of a credit card, most of us reach for our debit card, the ubiquitous direct link to our checking account that has become the de-facto cash alternative. It allows us to better track our spending and doesn't carry the threat of interest rates. It can, though, cause us to use money that was already set aside in checking for more important commitments on something not really necessary. Ultimately, your debit card is your best option. Nevertheless, instances do exist when your credit card is the better plastic choice.


1. Major purchases that may need protection

Let's say the new kayak you ordered online with your Visa (and have the cash set aside to pay for) doesn't come in the color you chose. The discount outdoor products Web site doesn't really believe you when you get online to discuss it. The site mentions free return shipping but let's face it—that's a cost they would like to avoid paying. In cases like this, your credit card company could come to your aid, providing additional records of invoices and should the issue reach dispute status, suspend the charge until the case is satisfied. If you used your debit card, that money would be gone while the debate continued on. In fact, the merchant would be much less cooperative knowing they already had your money. Also, major purchases on credit cards often come with theft protection and additional insurance policies. Sure, some you may not have signed up for but many cards include these benefits automatically.


2. Use Debit for gas, hotel and car rentals

A debit card isn't as secure as a credit card so when you punch in your pin at the gas pump, the Circle K folks place a hold on a certain amount of money in your account to ensure there is enough to cover the total. If you only fill up with $35, your account may temporaily register a $50 purchase. The $20 difference is unavailable until the "system" has confirmed the cash is present. If you choose "credit" instead of debit, that built-in electronic check system doesn't come into play. Now, think about the costs of renting a car and a hotel room for a few days. That same automatic hold process occurs in these instances as well. Thus, a significantly larger amount of your checking balance is for a short time dedicated to Hertz and HoJo. When a couple of hundred dollars becomes unavailable while other entities, say your power company, is trying to cash your monthly bill, it can create some real headaches. Checks can bounce. And that doesn't help your credit rating at all. Plus, when you get home, you'll have to reset all the digital clocks once you get the power back on. And who wants to do that?


3. Everyone likes a reward Okay, yes—we tend to hammer away at credit card reward programs. But if a card is used wisely, reward incentives can be a good thing sometimes. Airline miles, a cement garden planter and a foot massager can come in handy. See? We don't totally dislike credit cards. Now who wants a massage?

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