You’re spending with the wrong cards

Using a debit card over a credit card means missing out on better protection and rewards.

People in the UK are more likely to use a debit card than a credit card when they shop, according to new industry figures.

The UK Cards Association says we spent £35.2 billion on debit cards in February compared to just £14.4 billion on credit cards.

Debit cards vs credit cards

It’s clear to see the appeal of using a debit card.

For a start it’s easier to avoid falling into debt. The money you spend is (usually) yours and when you make a purchase it leaves your account straight away. As long as you keep an eye on your outgoings and don’t use an overdraft, you’ll keep out of the red.

But it’s a different story with a credit card.

A credit card allows you to borrow money so you can ‘buy now and pay later’. When you make a purchase you put off paying until your statement arrives, and even then you only have to pay a minimum rather than the full amount. Unless you have a special interest-free period or pay back what you spend in full, interest will start to build up.

So a credit card used irresponsibly could lead to spending more than you have and spiralling into debt.

However, if you can be disciplined, and pay back what you owe when you need to, spending on a credit card can be more sensible than using a debit card.

Here are some reasons why.

Better protection

When you spend on a credit card you get protection through Section 75 of the Consumer Credit Act.

The legislation states that if you spend more than £100 on an item or service with a credit card, the supplier and the credit card company share liability if anything goes wrong. You don't even have to pay the full £100 on the credit card - only £1 of the total spend needs to be on the card.

Debit cards don’t come with this sort of defence. Though you may be able to claim a chargeback through your bank in certain circumstances within 120 days of making a purchase, banks aren’t legally liable to do this like credit card providers are.

Rewards for spending

Everyday spending with a debit card rarely gives you anything back, but shifting it to a credit card can be very rewarding.

For example you can cut the cost of your next holiday with an airmile credit card. These can get you free flights, upgrades, car hire and hotel stays.

The British Airways American Express Credit Card for example allows you to earn one Avios for every £1 you spend. As an extra incentive the card offers a bonus of 9,000 Avios to those that sign up and spend £1,000 within the first three months. That’s enough for a return flight to Paris or Prague after fees and taxes. Take a look at The best air mile credit cards for more.

Other credit cards offer the chance to collect points for loyalty schemes like Nectar and Clubcard, which convert into a range of rewards.

The Tesco Clubcard Credit Card for example allows users to pick up one Clubcard point for every £4 spent. Once you have 250 points you get £2.50 worth of vouchers which can be used with Tesco or be exchanged for other rewards like days out or cinema vouchers. Check out The best reward credit cards for other top deals.

And then there are credit cards which allow you to earn cashback on your spending.

The American Express Platinum Cashback Everyday Credit Card, for example, pays 5% cashback when you spend up to £2,000 during your first three months. That’s a potential £100 profit by just sticking all your normal spending on the card. After the introductory period it pays up to 1.25% cashback. For more read The best cashback credit cards.

Whatever reward card you choose to use, you should pay the balance off in full each month. Otherwise the interest you’re charged on your outstanding debt will soon wipe out the value of your rewards.

Help with big purchases

If you need to make a big purchase, you’ll need to have the cash saved up already or have to wait until you do if you want to pay with a debit card.

That’s fine if you want to treat yourself to a holiday or some expensive new shoes. But if the purchase is more urgent, like a new boiler, a credit card with a 0% period on purchases can be a massive help.

With this sort of deal you can buy what you need and spread out repayments into manageable chunks to pay back what you owe before interest kicks in.

There are plenty of cards to pick from, but the longest deal on the market is the Santander 123 Credit Card, which offers 0% on purchases for 23 months. There is a £24 annual fee though. Check out The best 0% purchase credit cards for more top deals.

More on banking and borrowing:

Beware of borrowing from loved ones

The current accounts that still offer a free overdraft

Virgin Atlantic boosts bonus Flying Club miles on credit cards