Pros and Cons of Debit and Credit Cards

Find out which type of plastic payment reigns supreme

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 card. You can use both debit cards and credit cards for almost anything: everyday spending, shopping online, and even paying bills. Consider the pros and cons of each card before you commit to one.

Pros and Cons of Debit Cards

Debit cards are linked to your checking account. When you use one, money immediately gets taken out of the linked account. These cards come with advantages and disadvantages.

They Prevent Debt, but Funds Run Out

For many, the advantage 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. There also won’t be interest charges each month. However, when you run out of money, the card will be declined unless you were to opt-in to an overdraft protection system, in which case the bank will pay for the transaction. If you don't and have an unplanned expense, you may not have enough money in your account at the time to make a purchase.

They Have no Annual Fees but Incur Other Fees

Using debit cards is also inexpensive. They often do not charge the annual fees that some credit cards do. In addition, many banks offer free checking with no maintenance fees. As an added benefit, if you need cash from an ATM, you can generally get it for free using your debit card at ATMs affiliated with your bank. However, using other banks' ATMs may incur ATM fees.

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. Also, if you sign up for overdraft protection, you will incur overdraft fees. If you have a hard time controlling your spending, you could wrack up a considerable amount of overdraft fees. There are a few other situations where you can get hit with insufficient funds charges—if you write a check that bounces, for example—but those cases are relatively rare.

They're Good for Small Purchases but Complicate Big Ones

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). In contrast, you can often avoid swipe fees when you use a debit card, keeping your favorite businesses' costs low.

But one of the cons of debit cards is that if you make a large purchase, you're forced to spend immediately, as the funds immediately get taken out of the count. Credit card expenditures are loans, so you don't have to pay back what you borrowed right away, which allows you to keep your money a little longer.

They're Easy to Get but Require a PIN

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 don't have to apply for it separately, like a credit card. In contrast, you have to apply for a credit card separately, and some cards are limited to people with high credit scores. If you get a card from a bank other than where you do your banking, it also won't be linked to a bank account, which introduces more complexity to your finances. You'll often have 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.

However, one of the cons of debit cards is that they make spending slightly less convenient for the consumer. Unlike with a credit card, you can't simply swipe a debit card; you also have to enter a personal identification number (PIN) to prevent others from stealing your card and misusing it.

In some cases, you may have the option to use a debit card like a credit card, which would allow you to avoid entering a PIN.

Pros and Cons of Credit Cards

Credit cards allow you to borrow money from a bank to make payments now. When you use one, the bank pays the recipient on your behalf, and you later repay the bank. While these cards are convenient, they are not without their downsides.

They Are Less Risky, but Losses Occur

With a credit card, you can spend the bank’s money, now but 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. When you (or thieves with your card and PIN) use a debit card, the money comes out of your checking account immediately.

Credit cards also offer better protection against fraud. That said, today, most debit cards offer voluntary “zero liability” coverage. In addition, you can still lose money (albeit a small amount) with credit cards. With credit cards, you can’t lose more than $50 to fraud, but with debit cards, your liability is potentially unlimited under federal law.

They Can Build Credit or Hurt It

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 may 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. However, if you fall behind on payments, your credit score could drop, which generally isn't a possibility with debit cards.

They Offer Rewards, but Debit Has Its Perks

If you’re incentivized by bonuses, credit cards on the whole offer better rewards than debit cards in the form of sign-up bonuses, discounts, cashback, or travel points. Some credit cards even offer extended warranties on items you purchase as well as limited travel insurance.

While the average debit card doesn't offer such rewards, a small subset of debit cards linked to "rewards" checking accounts offer some of these benefits. For example, there are multiple cashback debit cards on the market.

Some rewards debit cards carry fees or impose spending restrictions that may outweigh the rewards, so read the fine print.

They Have High Limits but Promote Overspending

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). But if you have trouble budgeting, you can easily max out your credit limit, which can send you further into debt and hurt your credit score. In contrast, you can only spend money you have with a debit card, so they can curb the impulse to spend.

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.

Spending With Debit and Credit Cards
Use Debit Cards To... Use Credit Cards To...
Stay out of debt

Avoid annual fees

Avoid credit scrutiny

Simplify finances

Make ATM withdrawals
Complete everyday purchases without a PIN

Build credit

Pay after a grace period

Spend at higher limits

Receive robust fraud protection

Qualify for rewards

Prepaid Debit Cards

If you can’t decide between the two cards, consider an intermediate option: a prepaid debit card.

Unlike traditional debit cards, prepaid debit cards aren't linked to a checking account. Instead, you load money onto the card, and when you use it, the funds get withdrawn from the card. Like debit cards, prepaid cards prevent you from going into debt because you can only spend funds that you’ve loaded on the card. Once that money is used up, the card stops working.

Like credit cards, prepaid debit cards keep your primary checking account from being exposed to the world. If there’s an error or someone 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. Still, prepaid debit cards offer many of the advantages of debit cards and credit cards, which makes them a good option for those who want to extract the benefits of both.