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By Jean Chatzky

TODAY financial editor Jean Chatzky offers some advice about when you should pay for purchases with your credit card, your debit card or cold, hard cash.

WATCH: Should you use credit or debit to shop online?

Want to see a favorite small shop stay in business? Use cash

Banks charge "interchange fees" on merchants that accept cards, and that fee can be as much as 3 percent. That's a very big hit for a small merchant, and explains why some merchants don't take cards that have higher fees than others.  

The same, by the way, is true when you're leaving a tip. Restaurants and salons sometimes pass along that interchange fee to employees, which is annoying when you're trying to reward them for good service.

Shopping online for groceries, clothing or travel? Use credit

Credit card issuers watch for fraudulent charges! It's important in this day and age, especially with so many data thefts. If you detect fraud yourself, you can dispute a charge and get it reversed quickly thanks to credit card issuers' "zero liability" policies. 

Debit cards typically have these, too, but the money used is your own and it can take you a couple of weeks to get it back. That can lead to overdrafts and other problems.

Not good at paying bills on time? Use debit

In order to rebuild your credit, you need to use credit, and yes, pay your bills on time. But use credit sparingly. A debit card should be your primary form of payment. That way you don't give yourself as much chance to get into trouble.  

The store wants you to use a store credit card? Use a regular credit card

According to new research from, the average annual percentage rate on a store credit card is 8 percentage points higher than the average on regular credit cards. Of course, it's a good idea to pay any credit card off each month — that way you're not paying interest at all. But if you do carry a balance, it becomes much more expensive with a store credit card.

Making a big purchase and plan to pay it off at the end of the month? Use credit

Most credit cards — Amex, Visa, Mastercard and Discover — offer consumer protection packages that extend your warranty on a product, typically for an additional year.   

Note: In order to qualify, you have to make the purchase on that particular credit card. Read your contract to make sure you know how your warranty protection works. Sometimes you have to register the product.

You're at a hotel, gas station or rental car company? Use credit

These companies sometimes freeze part of your available funds to ensure there will be enough money left to pay them. That can put a crimp in your other spending, or, if you're spending close to the line, cause you to overdraw (which can be expensive by itself). 

Traveling out of the country? Use credit

Be selective: You need to check and see if your card has a foreign transaction fee. Many issuers will charge you an additional 3 percent on purchases made overseas. This can add substantially to the cost of your vacation.  

Capital One has made a selling point of no foreign truncation fees, but there are other cards that don't have them either. It's worth getting one if you'll be abroad often. has a page that lists them.

(Also: Call your card issuer before you go and tell them where you'll be so they don't suspect fraud on your account.)

Follow TODAY financial editor Jean Chatzky on Twitter.