Should You Spend With Debit or Credit Cards?

Female shopper paying with credit card in shop
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Paying with plastic is easy, but it’s important to choose the right type of plastic. You can use both debit cards and credit cards for almost anything: everyday spending, shopping online, and even paying bills. But which type of card is best? Consider the benefits and disadvantages of each before you commit to a card.

Avoid Going Into Debt

For many, the appeal of debit cards is that you don’t go into debt when using them. They limit spending to what’s available in your checking account. Your card will just stop working when you run out of money unless you sign up for optional overdraft protection, which is helpful if you have a hard time controlling your spending. There are a few situations where you can still get hit with insufficient funds charges, but those cases are relatively rare. There also won’t be interest charges each month.

No Annual Fees 

Using debit cards is inexpensive as well. They don’t charge the annual fees credit cards sometimes do. Some checking accounts (which you’ll need for a standard debit card) charge maintenance fees if you don’t qualify for a waiver, but a checking account is practically a necessity — a credit card is not. Plus, you can probably find free checking elsewhere. If you need cash from an ATM, you’ve got a good chance of getting it for free with your debit card, but credit card cash advances are notoriously expensive.

Lower Cost for Retailers

Debit cards can also be inexpensive for retailers. Merchants pay fees to process your payments, and debit card swipe fees are typically much lower than credit card fees (although there are exceptions). As a result, some merchants require you to meet minimum purchase thresholds when you use a credit card (a $10 minimum, for example). Help your favorite businesses keep costs low when you pay with a debit card.

Debit Cards Offer Simplicity

Your debit card comes with your checking account, and adding a credit card to the mix is just adding a layer of complexity to your finances. That’s one more username and password, another card number that can get stolen, and an extra payment you need to stay on top of each month. Your debit card will work almost everywhere a credit card works.

Debit Cards Are Easier to Get

Debit cards are easier to get if you have bad (or no) credit. If you can get a checking account, you can get a debit card. Whether you don’t like the idea of debt or you can’t get approved for debt products, debit cards let you steer clear of credit cards.

Credit Spending Is Less Risky

When you use a debit card, the money comes out of your checking account immediately. With a credit card, you (or thieves with your card number) spend the bank’s money, and you have a grace period before payment is due. That gives you more time to notice errors and dispute them — while keeping your checking account intact. Credit cards also offer better protection against fraud, although most debit cards with voluntary “zero liability” coverage are similar. With credit cards, you can’t lose more than $50 to fraud, but with debit cards, your liability is potentially unlimited under federal law.

Credit Cards Have Additional Protection 

While zero liability policies make debit cards almost as safe as credit cards (ignoring the time it takes to get the money back in your checking account), credit cards offer additional benefits. It’s easier to dispute charges if there’s a problem, and some credit cards offer extended warranties on items you purchase as well as limited travel insurance.

Credit Cards Build and Maintain Credit

Keeping a credit card account open helps you build a strong credit history or keep your credit in good shape. Debit cards, for the most part, do not affect your credit. Some die-hard debit card users say they don’t care about credit scores because they’ll never need to borrow, but those scores are important. You might want to borrow someday (to buy a home or automobile, for example), and starting from scratch is hard. You won’t pay any interest charges if you pay off your credit card balances in full every month, and some cards have no annual fees, so there’s little to lose.

Credit Cards Offer User Rewards

If you’re the type who wants a little extra, credit cards offer better rewards than debit cards (whether that means access to discounts, cashback, or travel points).

Credit Cards Have High Limits

Credit cards often come with limits that are greater than the amount of cash you keep in checking. As a result, you don’t have to worry about hitting your limit due to authorizations and holds. You’ll have fewer problems using your card for rental cars, hotels, gas at the pump, and dining (where pre-authorization holds lock up funds for several days, whether or not you pay with the card).

Other Benefits

Depending on your situation (and your card issuer), there may be other benefits to using credit cards. For example, at some rental car agencies, a credit card is the only acceptable form of payment.

Which Is Better?

A credit card is best for most purchases. When you shop online or in-person, a credit card protects you in several ways that a debit card can’t (including sheltering your checking account, extended warranties, and more). The key is to pay off the card’s balance completely every month to avoid finance charges.

A debit card is better for cash withdrawals and helps to avoid overspending and debt. For cash withdrawals at ATMs, your debit card is the best option. You’ll keep fees at a minimum, and your card information is unlikely to get stolen if you stick to safe ATMs. If a credit card will tempt you to take on a mountain of debt, stick with a debit card. But ultimately, you need to take charge of your spending (the type of card you use can’t do it for you). If you don’t do that, you’ll find ways to cheat and spend more than you should regardless of what’s in your wallet.

Prepaid Debit Cards

If you just can’t decide, prepaid debit cards offer some of the benefits of both credit cards and debit cards.

Like credit cards, they keep your primary checking account from being exposed to the world. If there’s an error or somebody steals your card number, the only money available is money you’ve loaded on the card. However, you’ll be unable to spend those funds (which you might need), and getting the funds replaced may be a slow and difficult process.

Like debit cards, prepaid cards prevent you from going into debt. You can only spend funds that you’ve loaded on the card. Once that money is used up, the card stops working.