The Debate Between Debit Cards and Credit Cards

More than half of all card transactions are now being paid with debit cards rather than credit cards, according to the Nilson Report. The debate between debit cards and credit cards continues on.  Many people made the switch to debit cards in an effort to avoid racking up too much debt and to help manage their budget more efficiently. The problem with this theory is the costly expense of overdraft fees if you mistakenly overdraw your account – and the fact that you lose out on many benefits by not using credit cards.

Credit Cards

Photo by Classyshot via Flickr

Despite the reinvention of the credit card industry and the recent legislation changes during a troubling economic period, there are still many benefits to using credit cards over debit cards which you may have overlooked, including:

  1. Build credit People who only ever use debit cards or cash to pay for their purchases are going to have a lower credit score than people who use and pay for credit card purchases in a responsible manner.  A credit score is calculated based on a number of factors, including the types of credit you use, how much credit you have available, and the average age of credit accounts.
  2. Buy now, pay later – If your paycheck doesn’t always come in at the same time as your bills, you can benefit from paying all of your monthly expenses on a credit card and then paying it off at the end of each month.  Just keep track of what you’re spending or paying for with the card, and make sure you have enough money set aside to pay it when the bill comes in.  This is a much better alternative to payday loans and debit card overdrafts.
  3. Avoid usurious fees – It’s somewhat counter intuitive, given their reputation, but credit card fees are 100% avoidable.  Meanwhile, many of the prepaid debit cards that people are starting to use in their place charge monthly fees, annual fees, usage fees, ATM fees, and fees to reload them.  So they actually end up costing much more.
  4. Avoid fraud from ATM skimmersMany thieves target bank ATMs with skimmers designed to steal your card details.  As you swipe your card through an ATM a thief has targeted to make a withdrawal, your card details are being transmitted to the robber who can then use them to make online purchases or over-the-phone orders.  In some cases, thieves can have cards created with your information so they can use them for in-person transactions, as well.
  5. Purchase and return protection – if you order something with a credit card that never arrives, or you pay with credit for a product that is not as it was advertised, the credit card companies will mediate for you.  Many cards will also help out if an item you purchase gets stolen or broken.
  6. Less fraud liability – if your credit card doesn’t offer a $0 fraud liability clause, the most you’ll have to pay if your card is stolen and used without your permission is $50.  With a debit card, if you don’t report the fraud within 48 hours of it happening, you can be liable for up to $500 for fraudulent charges.  Plus with a credit card you have the option of not paying for fraudulent purchases while they’re being settled, but with debit that stolen money is gone until the bank gets it back to you.
  7. Rent cars and reserve hotels – not all car rental companies or hotels will allow you to use a debit card.  And if they do, they will usually put a hold on your card for a much higher amount as a security deposit. If you have a credit card you can rent a car and reserve hotels without difficulty.
  8. Earn better rewards – While many banks have started to offer rewards programs in combination with their debit cards, debit rewards programs pale in comparison to the average credit card rewards program.

Credit cards have earned a bad name in the finance industry for charging high interest and fees to cardholders.  But credit cards are not evil; they are a tool. And if you use them responsibly — by only using it for things you can afford to buy and then paying your bill off in full each month — you’ll enjoy numerous benefits that you just don’t get when you use a debit card.

Do you have the best credit cards for YOU? Check now...and get the best.

What type of credit card
are you interested in?
How much do you spend
per month?
Do you carry a balance?

About the Author

By , on Nov 8, 2010
Tim Chen
Tim Chen is CEO of NerdWallet. NerdWallet helps you find the best credit card, by sorting nearly 600 credit cards by best rewards and lowest APRs. Tim writes about credit cards for the Forbes Moneybuilder Blog, Huffington Post, and the Christian Science Monitor.

Credit Cards

5% Cashback Categories for Discover, Chase, Citi, and more.
Best Credit Card Offers Search Tool

Leave Your Comment (5 Comments)

  1. Sid says:

    Not true your credit or debt card could never be used online and still stolen through online robots that skim through millions and millions of sites. So just saying you trust your bank or your store is foolish. The bank or the store can not guarantee your card won’t be a random target, The good news though is debt cards you got to report the fruad activity right away. Credit cards give you more time. However both are hit in randomization events. I know I got hit by a random event when I was on vacation in california, I had to go to Hawwii after so ass soon as it posted I went to the bank in Hawwii and took most of the money out in cash concerned that they may make another withdraw left some in there so I didn’t get a overdraft protection fee. Than I called the bank and reported and canceled my card. So when I got home I had to feel out a fraud report. I got my money back.

  2. Kris says:

    Yes, but debit cards are so much easier and you can’t get into such big trouble, like with credit. There are drawbacks, but still it is a better option financially. But can you trust the banks and stores to keep your account info safe?

  3. Jenna says:

    I think debt cards are like training wheels to credit cards, great for those just opening a bank account and learning the ropes. However, for rewards and emergencies credit cards are the way to go.

  4. Drew Cassels says:

    It is never (almost) one or the other. Each has its place. If you can collect extra reward points by using your credit card more, so much the better. But if you can’t resist spending over your ability to pay, then maybe credit cards are for emergencies only. So much depends on the person.

  5. We know you love credit cards which makes sense because you make money pitching them. I’m not going to refute all of your assertions but I do want to comment on Buy Now, Pay Later. First, if are using credit cards because you don’t have the reserves to cash flow expenses between paychecks, you are foolish. Second, study after study has shown that the delay between making a purchase and having to pay for the purchase psychologically enables and causes consumers to spend more. Add on the so-called “rewards” (which actually increase retail prices for everyone), and the impulse towards plastic is even more enhanced. Yes, credit cards are tools but you are confused about who is getting tooled.

Leave a Reply

Your email address will not be published. Required fields are marked *

*

Disclaimer

The information on this site is strictly the author's opinion. It does NOT constitute financial, legal, or other advice of any kind. You should consult with a certified adviser for advice to your specific circumstances.

While we try to ensure that the information on this site is accurate at the time of publication, information about third party products and services do change without notice. Please visit the official site for up-to-date information.

For additional information, please review our legal disclaimers and privacy policy.

Notice

Moolanomy has affiliate relationships with some companies ("advertisers") and may be compensated if consumers choose to buy or subscribe to a product or service via our links. Our content is not provided or commissioned by our advertisers. Opinions expressed here are author's alone, not those of our advertisers, and have not been reviewed, approved or otherwise endorsed by our advertisers.