Decisions, Decisions: Making Good Financial Choices

Should you make purchases by credit card or pay by debit card?

Credit cards have a number of advantages in this face-off. They let you dispute payments if the items you buy are unsatisfactory or (in the case of mail-order and online purchases) never arrive. Many offer rewards, such as cash-back bonuses and frequent-flyer miles, and some provide insurance in case a product is lost or stolen. But if you don't pay the whole balance on every statement, you'll be subjected to monthly finance charges.

Debit cards are fine for basic purchases (such as groceries and gas) that you might otherwise pay for with cash or by check. But it's crucial to limit their use to merchants you know and trust, since you're giving them electronic access to your checking or savings account, notes Gerri Detweiler, author of The Ultimate Credit Handbook. Monitor your bank account regularly for mistaken or fraudulent charges, and report them right away. And make sure you have enough money in your account to cover the charge, or you'll have to pay overdraft fees and your account could be frozen.

Bottom line: Stick to small (and local) purchases for your debit card. Use credit cards for all your other charges.

Copyright © 2008. Used with permission from the April 2008 issue of Parents magazine.