Credit Card vs. Debit Card: How To Select The Right One For You

Credit cards and debit cards might look the same, but they’re very different. A debit card gives you access to your own money. A credit card, on the other hand, lets you borrow money from a bank. With a credit card, you’re expected to pay back the money you owe by your monthly due date. If you don’t, you’re charged interest on top of your balance.

From that description alone, you might be thinking a debit card is the way to go. Keep in mind, though, that there are disadvantages to using a debit card as well. This article will detail the benefits and drawbacks of credit cards and debit cards so you can choose the right option for you.

Credit Cards

In the United States, over 191 million adults have a credit card. Credit cards have become essential. They’re both convenient and secure. They also help you build a positive credit history so you can get a mortgage, an auto loan, and more. That said, credit cards come with as many disadvantages as advantages. Keep reading for the pros and cons of using a credit card:

Pro: Credit Cards Help You Build A Good Credit Score

To be approved for a loan — whether for a home, a new car, or something else — you need a solid credit score. Lenders are more likely to offer you a loan with an advantageous interest rate if you have a high score. By making purchases with your credit card, and paying them off on time, you build a good credit history.

Con: Credit Cards Charge You Interest

If you don’t pay off your credit card balance each month, you’ll be charged interest fees. That means you could end up owing substantially more than the cost of your original purchases. The more interest you amass, the more difficult it’ll be to pay off your balance. And the longer it takes you to pay off your balance, the more interest you’ll acquire — a vicious circle.

Pro: Credit Cards Provide Advanced Security

Unlike debit cards, credit cards offer more security. If a criminal steals your debit card, they can drain your entire checking account. The same can’t be said about a credit card because the money available isn’t technically yours.

If someone steals and uses your debit card, you’ll have to wait for your bank to investigate before the funds are replaced. If your credit card is used, your credit issuer will likewise investigate, but the Fair Credit Billing Act limits your liability to $50.

Con: Credit Cards Can Be Too Convenient

There is no denying credit cards are convenient. With them, you have instant access to money. But that’s not necessarily a good thing. Some people make the mistake of using their credit cards to live beyond their means.

While credit cards can be helpful during times of financial hardship, overspending hurts you in the long run. Not paying off your balance on time will negatively impact your credit history. This means it will be difficult for you to get approved for a loan. Even if you do get approved, you’ll likely have to pay a high interest rate.

Debit Cards

Debit cards provide you with convenient access to your hard-earned money. Unlike credit cards, they don’t come with interest fees and service charges. It’s no wonder consumers prefer using debit cards over credit cards.

According to a 2021 study, 67% of card payments are debit card payments. Does that mean you should only ever use a debit card? Not necessarily. Keep reading for the pros and cons of using a debit card:

Pro: Debit Cards Don’t Incur Debt

One of the biggest advantages of using a debit card is it won’t cause you to go into debt. Your debit card links to your checking account, which only provides access to your money — not the bank’s. This means you have a limit. If there isn’t enough money in your account to cover an expense, your card will be declined. This makes it impossible for you to spend money you don’t have.

Con: Debit Cards Don’t Help You Build A Good Credit Score

While debit cards keep you spending within your means, they won’t help you build credit. Eventually, when you have to apply for a loan, lenders will take a look at your credit score. One of the chief ways to build good credit is by using a credit card.

That said, if you don’t make payments on time, credit cards can harm your credit score. Debit cards can also hurt your credit report if you overdraft and carry a negative balance.

Pro: Debit Cards Don’t Charge Additional Fees

Unlike credit cards, most debit cards don’t typically come with additional fees like late payment charges and annual fees. Sure, some ATMs will charge a few dollars when you withdraw money from your checking account. But if you visit an ATM within your bank’s network, you can avoid those fees. Some banks — particularly online ones — will even refund ATM fees in certain circumstances.

It’s possible to be charged an overdraft fee if you use your debit card when your account balance is low. However, many banks offer overdraft protection. You can have your bank reject your card if there are insufficient funds so you don’t accidentally spend what you don’t have. If you use your debit card carefully, you should be able to avoid fees altogether.

Con: Debit Cards Are Not the Safest Way To Shop

It’s easier to dispute charges on a credit card than on a debit card. This is mainly because you have fewer legal protections with a debit card. Once your money has been taken out of your checking account, it’s gone.

Now, this doesn’t necessarily mean you won’t be refunded for any fraudulent activity. Still, it can take time for your bank to investigate the issue. And during that time, you won’t have access to that money.

While debit cards are still the most popular card payment option, there are 1.06 billion credit cards in use in the United States. Whether you choose to use a credit card or debit card, the key is to spend wisely. Neither card will benefit you if you don’t have control over your finances.