Debit Cards vs. Credit Cards: How To Choose

Most of us use a plastic card of some kind to complete transactions. But should you use a credit card or a debit card to regularly cover your purchases? 

The choice is entirely personal. Both credit cards and debit cards offer the opportunity to swipe with ease. But these cards come with different features that will sway you to one side or another. So, which one is the right type of plastic for you?

In collaboration with Credit Karma Money, we’re going to explore the differences between debit cards and credit cards. Plus, how to choose which one is right for you. 

Credit Cards: What You Need To Know

Credit cards are a widely-used financial tool. The small rectangular piece of plastic or metal is issued by a financial institution. Once issued, the cardholder can borrow funds up to a certain limit to cover purchases. 

At the end of each month, you’ll receive a single bill for the purchases made on your credit card. Credit cards carry high interest rates and the potential for lucrative rewards. 

Here’s a closer look at the advantages and disadvantages of a credit card.

Advantages Of A Credit Card

When you are using a credit card, there are several key advantages to be aware of. 

First, using your credit card responsibly can build your credit history. Responsible credit card usage involves consistently making on-time payments. Additionally, a low credit utilization rate can help your credit scores.

Beyond the potential upsides for your credit scores, credit cards often provide warranties or insurance on items that you purchase with your credit card. If you plan to buy a relatively expensive item with your credit card, it is worth looking to see if the card offers an extended warranty. 

Disadvantages Of A Credit Card

Of course, every financial product has some drawbacks, and credit cards are no exception. 

Here are some of the disadvantages to keep in mind when considering opening a credit card. Depending on your use of a credit card, a flaw could be that you are only required flaw of a credit card is that you are only required to make a minimum payment each month. If you only make the minimum payments, it can be a slippery slope towards mounting credit card debt. 

With the high interest rates often associated with credit cards, it is all too easy to allow your credit card debt to mount rapidly. Additionally, a growing credit card balance can negatively impact your credit scores. 

Finally, the fees associated with a credit card can add up quickly.

Debit Cards: What You Need To Know

On the other side of the debate are debit cards, which are another popular spending tool. A debit card works by facilitating transactions directly from your checking account. Typically the funds must be immediately available in your checking account to complete the transaction. 

Let’s take a closer look at some of the advantages and disadvantages of debit cards. 

Advantages Of A Debit Card

If you are concerned about sliding into credit card debt, a debit card can help you completely avoid that possibility. Since debit cards don’t act like a loan from the financial institution, you’ll never be able to spend significantly more than what money is available in your checking account. 

Debit cards are also great for consumers that want to avoid fees. In most cases, you’ll find fewer fees associated with a debit card than a credit card. For example, you can easily find a debit card without an annual fee attached.

Plus, you won’t need to have a great credit score to be eligible for a debit card.

Related: Best Prepaid Debit Cards

Disadvantages Of A Debit Card

Of course, debit cards have some drawbacks. 

In most cases, debit cards offer fewer consumer protections than credit cards. For example, not all debit cards offer a security feature that allows you to lock your debit card instantly if you encounter any suspicious activity. However, that may be changing. Credit Karma Money offers the ability to lock your debit card instantly. 

Plus, it is uncommon for debit cards to offer rewards such as cash back or travel credit on your spending. This can be frustrating if you want to get the most bang for your spending. But Credit Karma Money offers an opportunity for debit card users to win a sweepstakes. 

Another notorious complaint of debit card users is that accidental overspending can lead to overdraft fees. With the average overdraft fee costing $33.47 in 2020, that inconvenience can add up quickly. But it is possible to find debit cards that won’t charge you any overdraft fees. 

Finally, you won’t have the opportunity to build your credit if you choose to use a debit card. 

With all of these drawbacks in mind, it is important to realize that hunting around for the right card could erase most of the worries you have about the potential disadvantages of debit cards.

Debit Cards vs. Credit Cards: Which Is Better For You?

The differences between a credit card and a debit card are relatively cut and dry. However, the choice between the two types of plastic comes down to your personal preferences surrounding your money habits. 

If you are wary about the potential pitfalls that could cause you to rack up credit card debt, then a debit card may be the better fit. But if you want to maximize your spending with extensive credit card rewards, then a credit card is probably the better option. 

Take some time to weigh your options before diving into this important choice between two useful financial tools.