Credit Cards Vs Debit Cards

Credit Cards Vs Debit Cards: What’s the Difference and Which is Right for You?

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Last updated on December 1, 2020

At first glance, there’s not much difference between credit cards and debit cards. They look the same. You use them both to pay for goods and services. And a lot of the classical differences between a credit vs debit card are narrowing over time. Debit cards increasingly come with credit card-like features.

However, important differences remain both in how a credit card vs debit card works, and the kind of extra features you can expect between the two.

With that in mind, let’s examine the pros and cons of each, and when to use a credit vs debit card.

Credit Cards vs Debit Cards – What Are the Pros and Cons of Each?

In the table below, you’ll see the headline credit cards vs debit cards pros and cons that should give you an idea of when to use a credit vs debit card. We’ll dive into more detail below.

Pros
Cons
Credit Card

  • Fraud & purchase protection

  • Buy now, pay later

  • Purchase rewards

  • Builds credit rating


  • Interest charged on unpaid balances

  • Easy to rack up debt

  • Sometimes come with annual fees

  • Interest-bearing cash withdrawals

Debit Card

  • Only use the funds you have

  • Typically no fees

  • No interest on purchases

  • Interest-free ATM withdrawals


  • Lower fraud & purchase protection

  • No line of credit

  • Fewer purchase rewards (if any)

How to Identify a Credit Card vs Debit Card

Superficially, credit cards and debit cards look the same. They’re both plastic rectangles sporting the same set of numbers. It can be hard to know how to identify a credit card and a debit card.

In most cases, both credit and debit cards have a payment network logo in the bottom right corner on the front; usually Visa or Mastercard. Many cards will have ‘debit’ or ‘credit’ written above the logo – or incorporated into the logo itself – to indicate which it is.

If it doesn’t say on the card itself, the other approach for how to identify a credit card and debit card is to log in to your online account. Where the information is displayed will depend on your provider, but it will doubtless be there somewhere.

How Do Credit Cards Work?

So, how do credit cards work? The major difference between a credit vs debit card is that credit cards are a form of borrowing. When you buy something on a credit card, the card issuer pays – not you. In effect, your credit card company loans you the money to pay for your coffee, groceries, or gas.

If you buy something on day one of your billing cycle, that loan is interest-free for nearly two months. Credit cards usually bill after one month and give you 3-4 weeks to pay. If you fail to pay within this period, the balance begins to incur interest – this is how the card issuer makes money (along with taking a cut of the transaction from the merchant.)

Credit cards often come with rewards for spending – usually in the form of points to be redeemed on travel, merchandise, or cashback. These are designed to make you use the card, with the hope that you’ll neglect to pay your bill so they can charge you interest.

However, pay your bill on time every month and you can reap all the rewards, with none of the interest. And those rewards can really add up. For example, you could earn up to $342 in the first year of using a Blue Cash Everyday® Card from American Express to buy groceries.

Plus, establishing a record of repaying debt builds up your credit rating, making it easier to take out larger loans or a mortgage in the future.

How Do Debit Cards Work?

So how do debit cards work? The headline difference between a debit vs credit card is that a debit card draws on funds available in your checking account. Rather than borrowing from the card issuer, you pay out of your own pocket. There is essentially no difference between using a debit card and cash – you just skip a trip to the ATM.

Debit cards usually don’t offer the same kind of payment rewards as credit cards, because they’re not as profitable for the banks that issue them. They’re more a utility that enables you to access the money in your bank account.

Do debit cards have any advantages? Because debit cards aren’t a form of borrowing, they’re available to anyone with a checking account. Credit cards are subject to credit checks and can be refused based on your status. However, that also means that using a debit card doesn’t establish a credit history and won’t help you borrow in the future.

Debit Card vs Credit Card Security

Credit and debit card fraud accounts for 45% of identity theft in the U.S., costing Americans $14.7 billion in 2018.

Fraud protection has always been one of the major benefits of a credit card vs debit card. By law, credit card users are only liable for up to $50 of unauthorized transactions. And your credit card company is obligated to investigate if you send a written request within 60 days a suspicious charge.

The law is less robust for debit card vs credit card security. If a suspicious charge is reported within two days, your liability is limited to $50. However, it rises to $500 should you take any longer. And because of the way that debit cards work, any money lost to fraud is your own – rather than the card providers.

This security imbalance is changing. Many debit card issuers are implementing voluntary fraud protection, such as the Chime debit card, which features Visa Zero Liability – shielding you from any unauthorized charges.

However, many credit cards feature additional layers of security. For example, the Chase Freedom Flex adds an extra year onto the manufacturer’s warranties and protects new purchases from damage and theft for 120 days.

When to Use Credit and When to Use Debit

Taking all the above into account, then, let’s look at when to use a debit vs credit card, and vice versa.

When to use credit vs debit card

In most cases, credit cards are usually the better bet. For day to day use, they usually offer greater protection against unauthorized transactions. You can earn cashback as you spend. There are even situations where you can only use a credit card, such as renting a car.

Longer-term, credit cards can help you manage your cashflow, spreading the cost of bigger items. With a 0% interest introductory period – such as the 15 months offered with the Chase Freedom Flex – you needn’t pay any interest in doing so. And they help you build up your credit history, contributing to any future borrowing you may need to do.

When to use debit vs credit card

Do debit cards have any advantages? Absolutely. Credit cards are the easiest path to debt. It’s common sense to pay down your balance every month, but the temptation to carry over and spend beyond your means can be hard to resist. Debit cards avoid temptation in the first place.

Debit cards are also essential for withdrawing cash. While credit card purchases usually don’t incur interest until after the payment date, cash is interest-bearing from the moment it exits the ATM, often charged daily. Interest like that can add up faster than you realize, making cash a clear case of when to use debit vs credit card.

Can a Credit Card Be Used as a Debit Card?

Many people think of credit cards as for emergency use only, fearful of incurring interest or spending more than they can afford. But can a credit card be used as a debit card?

Aside from ATM withdrawals, credit cards can more than replace debit cards in daily use. As long as you pay your bill every month, the extra protection and spending rewards make credit cards a better solution for conducting your finances than debit cards.

Bottom Line

Looking at the credit cards vs debit cards pros and cons, it should be clear that neither is right for every situation. Most people have one of each in their wallet.

While credit cards carry clear advantages in most instances, plenty of folks are rightly wary of the temptation to rack up debt. In that respect, sticking with a debit card can be advantageous, forcing you to spend within your means.

And while the chief advantage of a credit card vs debit card used to be fraud protection, products like the Chime debit card enable you to avoid the risk of interest without risking fraud.

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