You are spending on the wrong card!

From added protection to cashback and rewards, disciplined spending on a credit card makes far more sense than a debit card.

People shopping online were more likely to use a debit card than a credit card last year, according to the latest industry figures from the UK Cards Association.

It found that £35 billion was spent with debit cards, compared to £34 billion with credit cards.

Debit cards were also used to make half of all retail sales, with the number of debit card holders rising by around a million compared to 2011.

I can understand the appeal of doing your spending with a debit card. For one thing, it’s easier to avoid falling into significant debt. As soon as you spend the money, it’s gone from your account. So long as you check your balance fairly regularly you soon realise how much cash you have at your disposal. And if you don't have an overdraft, you can't go into the red!

That’s not the case with a credit card, where you are essentially putting off paying for your purchases for a month, until your statement arrives. And even then you don’t have to pay it off in full.

However, so long as you are able to exert a little financial discipline, spending on a credit card is far more sensible than using a debit card. Here's why.

Extra protection

For starters, there’s added protection if you spend using a credit card in the form of Section 75 of the Consumer Credit Act.

This clever piece of legislation stipulates that if you spend more than £100 on an item, the supplier of the goods and the credit card company share liability. So if something goes horribly wrong, you can claim your money back from either party.

For example, let’s say you buy a new bed online. But before it is delivered, the firm goes bust. You can go to your credit card company to get your money back.

Best of all, you don’t even need to use the credit card to pay for all of the purchase. Even if you spent £1 on the credit card and the rest on a debit card you’ll still be covered for the full price of the purchase!

You may even be able to claim for further financial loss than you incur because of the problems with the initial purchase. So for example if you are on holiday and your airline goes bust, you may have to pay more for a different, more expensive flight home. And you could claim the full cost of the more expensive flight.

Extra rewards

If I spend £200 at Tesco a month on food shopping, I don’t get anything in return if I use my debit card to pay for it.

But with many credit cards, I will get something back. For example, I have the Tesco Clubcard credit card which gives me Clubcard points. For a £200 spend at Tesco, that’s an extra 250 Clubcard points, the equivalent of £2.50 in Clubcard vouchers.

There are all sorts of loyalty schemes like this, whether you want to collect Nectar points, Freedom Rewards points, Avios or even points towards rewards from the AA.

Check out The best reward credit cards.

Or I could use a cashback card, which rewards me in cash for the money I spend. For example, in the first three months with the fee-free American Express Platinum Cashback Everyday card, you get 5% back on the money you spend (capped at £100). So if I used the card for my Tesco shopping, that’s £10 in cashback.

Read The best cashback credit cards.

Whether you go for a reward or cashback credit card, it’s crucial that you 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!

Spreading your payments

If you need to make a big purchase, you don’t have many options if you’re using a debit card. You either need to have that cash at your disposal or wait until you do. That’s all well and good when the purchase is something that’s not entirely necessary, whether it’s a holiday or a new TV.

But if the purchase is urgent, and you simply don’t have the money within reach, then a credit card that offers a 0% interest period on purchases is a better idea.

For example, I know that my boiler is in urgent need of replacement and that it will cost £1,000. But I don’t have that sort of money at my disposal. If I get the Tesco Clubcard credit card for purchases, I won’t pay any interest on my spending for 18 months. So long as I pay the £1,000 balance off in that time – that’s the equivalent of £56 a month – I won’t pay a penny in interest.

Read more in The best 0% purchase credit cards.

More on credit and debit cards

The best cashback credit cards

The best 0% balance transfer credit cards

The best 0% purchase credit cards

The best credit cards to use abroad

How to build an excellent credit history

The alternative to chip and pin cards