Credit Cards vs. Debit Cards: Which Should You Use?

If you’re like most consumers, you already use plastic for at least some of your everyday purchases, but you may be unsure of whether you should use a debit or credit card. Fortunately, both are valid ways to pay for goods and services, and both come with their own sets of advantages and drawbacks. 

Debit cards, as well as credit cards, provide an excellent alternative to carrying cash or checks because you’ve got built-in protection in case your purse or wallet is stolen or misplaced — thieves can steal your identity using the personal information on printed checks, and there’s no way to recover lost cash.

If someone steals your debit or credit card, however, there’s usually a limit on your personal liability if someone uses the card without your permission, and the same usually holds true if your card information is somehow accessed by those using online hacking strategies. If you’re able to catch it in time, you can easily switch your card to the inactive status before the thief has time to withdraw funds. 

Which choice is better, debit or credit? As mentioned before, both have advantages. Let’s take a look at what they are, beginning with debit cards.

The Advantages of Using Debit Cards

One of the main benefits of using debit cards is that when you do so, you aren’t spending money that you don’t have. Debit cards essentially act like an electronic checkbook, which means that if it’s not in your account, it can’t be spent. However, most financial institutions allow debit card holders in good standing to take advantage of overdraft protection plans, which will allow you to make purchases even when your bank balance is low.  

However, paying close attention to your bank balance is something everyone with a debit card should do for a variety of reasons.

You May Be Able to Recover Funds if Your Card is Stolen or Hacked

Not keeping tabs on available funds also leads to potential trouble for those who’ve been hacked or whose cards have been stolen. Debit card theft is covered under the Electronic Funds Transfer Act, which essentially imposes limits on your liability based on when you reported the issue. For instance, if you report unauthorized charges within 48 hours, your liability is the same as it would be with a credit card — $50.

However, if you wait for longer, you could be responsible for as much as $500, and fraudulent charges reported after 60 days may not be protected at all. You should also keep in mind that if your bank balance gets wiped out as a result of a criminal accessing it, you may be left without rent or grocery money while waiting for the bank to replace the funds. The length of this process varies by company, but it often takes several weeks for the money to be back in the accounts of those who’ve been victims of financial fraud.

Those who use a debit card need to check their balance on a daily basis, whether they’ve used their cards on that particular day or not. You should also make certain to read the fine print carefully — some debit card companies offer increased fraud protection for PIN signature purchase as opposed to those where you enter a PIN.

You Won’t Pay Interest on Debit Card Purchases

An obvious advantage to using a debit card is that you won’t pay interest on your purchases, and with average interest rates currently hovering around 18 percent, this has the potential to result in substantial savings. Keep in mind, though, that an increasing number of credit card companies are offering zero-interest options provided you pay off your balance within a specified time period. 

The Advantages of Using Credit Cards

As mentioned earlier, fraudulent activity concerning debit and credit cards are regulated by different government agencies. For this reason, consumers have more overall protection against illicit activity concerning the cards. As an added bonus, replacing a credit card after it’s become lost or stolen is a faster process than replacing a debit card. Following are several other benefits of opting to use credit cards.

It’s Easier to Dispute Charges With a Credit Card

Credit card companies make it easier to dispute charges and frequently work directly with vendors to reach an agreement that’s satisfactory to you. You also won’t be required to pay the charge until the dispute is resolved, but with a debit card, the funds are removed from your account immediately. 

Similar perks to choosing credit cards include free extended warranties on specified purchases, roadside and emergency travel assistance, the opportunity to earn airline miles, cash-back rewards, and guaranteed return policies. Some credit cards even provide event protection, which means that you’ll be reimbursed for ticket prices if you can’t make it to a concert, play, or other event. Another common perk of certain credit cards reimbursement for damaged or stolen items.

Certain Types of Businesses Often Put Large Holds on Debit Card Funds

Hotels, and motels, car rental companies, and gas stations often put large holds on funds when a customer pays with a debit card, and this can create uncomfortable situations when you’re traveling. These holds are frequently for way more than your purchase. Imagine being unable to pay for dinner when on vacation because the hotel has put a large hold on your funds!

Using a Credit Card Helps You Establish Credit

Using credit cards responsibly also helps you to establish good credit, while debit card activity has no effect whatsoever on your credit rating. However, if you decide to use a credit card as a part of your credit-building strategy, keep in mind that not using the card wisely may have the opposite effect, so make sure you’ve got the resources to keep current on your obligations to the credit card company. If you fall behind on your payments, you may end up doing damage to your credit report that you’ll end up dealing with for many years to come. 

As you can see, both types of cards come with distinct advantages. Smart consumers use a combination of both and tailor their use depending on their individual needs and preferences. For instance, you may make everyday purchases using a debit card and save the credit card for when you travel or make major purchases.

If you’re planning on buying a home or vehicle in a year or so, using a credit card helps you establish a credit rating that will appeal to lenders, and if you’re trying to reign in impulsive spending, using a debit card can help you keep that in check.

Keep in mind that there is no either/or equation here or one-size-fits-all answer to which payment option you should use. Both have significant advantages of carrying cash or paper checks. Having at least one debit card and one credit card keeps all your payment basis covered and lets you choose which one is best for the job on a case-by-case basis. Some cards even offer the best of both worlds and give users the option of using credit or debit at the point of purchase.