Should you Spend with Debit or Credit Cards?

Which is Better?

Wallet with Cards
Why choose one? Use a credit card for everyday (and online) spending, and a debit card for cash withdrawals. pagadesign/E+/Getty Images

Paying with plastic is easy, but choosing what kind of plastic is not so simple. You can use debit cards or credit cards for most of the same things: everyday spending, shopping online, and even paying bills. So which type of card is best?

A credit card is probably a safer way to spend, but credit cards aren’t perfect. Before you commit to a single type of card (which you don’t have to do – you can use different cards for different purposes), it’s helpful to know the pros and cons of each type.

Advantages of Debit Cards

No debt: for many, the appeal of debit cards is that they don’t let you go into debt. You’re allowed to spend what’s available in your checking account, and that’s it. Unless you signed up for optional overdraft protection, your card will simply stop working when you run out of money, and that’s helpful if you have a hard time controlling your spending. You won’t find yourself deep in debt and you won’t have to contend with high interest charges every month.

Cost: debit cards are also inexpensive. Unlike credit cards, debit cards don’t charge annual fees (of course, some checking accounts charge maintenance fees if you don’t qualify for a waiver, but you probably need your checking account anyway – and you can probably find free checking elsewhere). If you need cash from an ATM, you’ve got a decent chance of getting it for free with your debit card, but credit card cash advances are notoriously expensive.

What’s more, debit cards are less expensive for merchants, so you can help your favorite businesses keep costs low when you use a debit card.

Simple: your debit card comes with your checking account, and you need a checking account, so adding a credit card 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 works just like a credit card if you choose "Credit" at checkout.

No credit needed: 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. You can even use a prepaid debit card if getting a bank account is not an option.

All that said, credit cards have their benefits.

Advantages of Credit Cards

Less risk: when you use a debit card, the money comes out of your checking account immediately. With a credit card, you spend the bank’s money, and you have a grace period before payment is due. You have more time to notice errors and dispute them – while keeping your checking account from going to zero. 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.

Additional protection: while zero liability policies make debit cards 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.

Build and maintain credit: keeping a credit card account open helps you build a strong credit history – or keep your credit going strong if you’ve got good credit. Debit cards, for the most part, do not affect your credit. Some diehard debit card users say they don’t care about credit scores, but those scores are important, and you might want to borrow someday (to buy a home or automobile, for example). If you wait until the last minute to establish your credit, things will be more difficult.

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, cash back, or travel points).

High limits: credit cards often come with limits that are higher 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. You’ll have fewer problems using your card for rental cars, hotels, gas at the pump and dining (where preauthorization holds lock up funds).

Still not enough for you? See 8 Credit Card Perks You Probably Didn't Know You Had.

Which is Better?

Ultimately you’ll have to decide what’s most important. If you want the best of both worlds, use your credit card for most of your spending (and pay it off completely every month to avoid finance charges). It will be easier to manage your card, and you’ll limit the number of places that have direct access to your checking account. Use your debit card for cash withdrawals to keep costs low.

If a credit card will tempt you to take on 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.