When to Choose a Debit Card vs. a Credit Card

With many young consumers opting for debit vs. credit, credit card enthusiasts are quick to point out what they’re missing in terms of perks like miles and even cash back. However, there’s no right answer when it comes to which type of plastic you should use. The important thing is that you understand the pros and cons of both and choose the one that works best for you.

Debit vs. Credit: How They Compare

 

The best choice for you likely depends on what you want to use your card for. Take a look at our winners for the following benefits, fees, and uses.

Fraud protection

Both debit and credit cards offer zero-liability protection on fraudulent purchases. But the process of getting your money back differs depending on the type of card you use. According to the Fair Credit Billing Act, the maximum amount you may lose on an unauthorized credit card charge is $50, and the investigation will likely be over by the time your statement balance is due. However, under the Electronic Funds Transfer Act, your potential loss on a debit card may be as much as $500 if you report the fraud more than two days after it took place. What’s more, the bank may not restore that cash to your account immediately. If you need that money now, you’ll be at the mercy of the bank. In both cases, you’re not responsible for any amount of the unauthorized transaction if you report the card missing before any fraudulent purchases take place. Winner: Credit cards

Spending control

The winner on this one is fairly obvious. Because debit cards are linked to a checking account instead of a line of credit, the only way to go into debt with this type of card is to overdraw your account. And you can avoid this by opting out of overdraft protection. It’s possible to use credit cards without going into debt, but folks who pay off their balances in full each month may be in the minority. According to a 2016 NerdWallet study, households with credit card debt owe $16,748 on average. All things considered, it’s easier to overspend with credit cards than with debit cards. Winner: Debit cards

Rewards

Rewards are a common feature for credit cards, but it can be difficult to find a debit card with a good rewards program. According to Elan Financial Services, just 17 out of the top 25 financial institutions offer a debit rewards program. Even then, credit cards offer big profits for banks, so they’re more competitive in offering rewards to entice people to use their cards more often. As such, you’ll likely find better rewards and big sign-up bonuses with credit cards. Winner: Credit cards

Fees

When applying for a credit card, it’s a smart idea to review the cards rates and fees as part of your application submission. When doing so, you’ll notice that most credit cards charge a slew of fees, depending on how you use the card. Late fees, cash advance fees, balance transfer fees and foreign transaction fees are all common among credit cards. Some even charge an annual fee. And that’s all on top of interest charges if you carry a balance. Debit cards, on the other hand, typically don’t come with a lot of fees. In fact, if your checking account charges a monthly fee, you may be able to get the fee waived by using your debit card regularly. Better yet, with the Chime Spending Account and Chime Visa Debit card, you won’t have any fees at all. That’s right – no monthly maintenance fee, no overdraft fee, and no foreign transaction fee. You’ll also pay no ATM fees at over 24,000 MoneyPass ATMs. Winner: Debit cards

The Best Option May Depend on the Purchase

If you have a debit card and a credit card, you may benefit from using both. For example, when you rent a car, stay at a hotel or fuel up your car, it’s best to use a credit card. That’s because the merchant may place funds hold on your card. Depending on the purchase, that could be hundreds of dollars. If you’re using a credit card, funds hold is no skin off your back. But if you’re using a debit card, it means that your money is unavailable to use, which can cause problems if you need it. Also, some credit cards offer benefits on certain purchases. For example, you can often get rental car and other travel insurance coverage to help you save money when you’re on vacation. On the other hand, some merchants charge a fee if you use your credit card. For example, some utility companies may add a percentage of the transaction to your payment. Also, some gas stations may charge you a few more cents per gallon if you use a credit card.

Which Should You Choose?

If you only want one card to use for all your purchases, consider your priorities and the benefits and drawbacks of each card type before you choose one. Debit cards are a good choice if you struggle with overspending or just want to avoid that temptation completely. If you’re not as debt-averse, however, a credit card offers appealing features. Just be sure to pay off the balance in full to avoid interest and try not to use the card at merchants that tack on an added fee. If you already have both a debit and credit card, the best choice may be to use one for certain purchases and the other for the rest. Review the terms and features of both your cards to determine which to use in different situations. The better you understand the terms and what you need, the more likely you are to find a solution that works for you.

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