Should you Spend with Debit or Credit Cards?

Which is Better?

Small business owner paying for orders over phone
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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?

Credit cards have several advantages over debit cards — particularly if you’re concerned about protecting your checking account — but debit cards have their place.

Before you commit to a single type of card (which you don’t have to do, since 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 sign up for optional overdraft protection, your card will just stop working when you run out of money, and that’s 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. You won’t find yourself deep in debt, and you won’t have to contend with high interest charges every month.

Costs you pay: Debit cards are inexpensive to use. Unlike credit cards, debit cards don’t charge annual 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. 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.

Costs merchants pay: 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). You can help your favorite businesses keep costs low when you pay with a debit card.

Simplicity: Your debit card comes with your checking account, and you need a checking account, so 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.

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. 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.

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 (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.

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.

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.

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 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. For a few more ideas, 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 both cards:

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 best for cash withdrawals and debt avoidance. 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.