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Debit vs. credit: What’s the best way to pay?

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When do you use a credit card, and when do you use a debit card? Believe it or not, many people don’t think very carefully about debit versus credit—they use whichever card is “easiest,” which usually means the card that is closest at hand.

When people do think critically when it comes to debit and credit cards, they occasionally come to the wrong conclusions. Some people mistakenly assume debit is safer than credit, even though it’s often the other way around. Other people don’t realize that making purchases on debit won’t help them build the kind of credit score needed to take out a car loan or apply for a mortgage.

That’s why we’ve put together a complete guide to debit versus credit, including which cards are safer to use, which cards are best for online shopping and which cards are best for buying gas. Is credit always the better choice, or are there times when it’s better to use a debit card? We’ll give you the pros and cons—and our best financial advice.

How do credit cards work?

Credit cards allow you to make purchases now and pay them off later. Most credit cards offer revolving lines of credit, so you can either pay off your balance in full every month or carry a balance from month to month and pay it off over time. If you do not pay off your balance in full before your credit card grace period expires, interest may be charged on your unpaid balance.

Credit cards come with a unique 16-digit number that lets you quickly and easily make purchases in person or online. As long as you haven’t exceeded your credit card limit, your purchase should go through—which is why it can be easy for some people to spend more than they realize and end up in credit card debt.

Here’s a look at some of the pros and cons worth considering when it comes to using a credit card.

Pros and cons of credit cards

Pros Cons
  • Credit cards can help you build a strong credit history. In order to do so, it is necessary to create solid habits, such as paying your bill in full and on time each month.
  • Rewards credit cards allow you to earn points, miles and even cash back when you use your card to make everyday purchases.
  • Immediate access to funds. Some may argue this is a con, however, a credit card is a blessing in an emergency. If you have to use a credit card for a large expense, do your best to pay it off by the end of your billing cycle so you aren’t charged interest.
  • Bad habits can hurt your credit score. If you don’t use your credit card responsibly, your credit score will take the hit.
  • Interest can be the enemy. If you can’t manage to pay your balance in full and on time each month, you will be charged interest.
  • Easier to take on debt. The temptation of a credit card can cause many to spend more than they should. If you don’t have the means to pay off a purchase in full at the moment you swipe your card, reconsider the purchase. You don’t want to accumulate debt due to a shopping spree.
  • Annual fees can be steep. Not all credit cards charge an annual fee, but typically credit cards that offer luxury rewards, for example, come with a high price tag.

How do debit cards work?

Debit cards, like credit cards, come with a unique number that allows you to make purchases in person or online, quickly. The big difference between debit and credit is that debit cards withdraw money from a linked checking account. Instead of making a purchase now and paying it off later, a debit card immediately draws from your account to pay for the entire amount. As long as there’s enough money in your checking account, your debit card purchase should go through—and since you’re using the money you already have, you don’t have to worry about going into debt from the purchase.

Are debit cards the same as cash?

Sometimes people hear “cash versus credit” and assume it means “credit cards versus paper money.” The truth is that debit cards are the same as cash. These days, “cash” refers to any money already in your possession, such as the money in a checking or savings account.

When you use money you already own to pay for something, you’re using cash. When you use money you’re going to pay back later, you’re using credit. Since a debit card draws funds from a linked checking account, debit is the same as cash.

Here’s a look at some of the pros and cons worth considering when it comes to using a debit card.

Pros and cons of debit cards

Pros Cons
  • The money in your account is liquid. This simply means what you have in the bank account associated with your debit card is as good as cash. You don’t have to pay anything back when you make a purchase with a debit card.
  • No annual fees. Debit cards usually don’t have annual fees.
  • No credit? No problem. Debit cards are usually easy to get, even if you have poor or no credit
  • Debit cards won’t help your credit score. You can use your debit card responsibly, it still won’t help build your credit score.
  • Rewards programs are non-existent. You will miss out on the rewards programs that come with most credit cards because debit cards don’t offer the same perks.
  • Fees, fees and more fees. Debit cards typically come with monthly maintenance fees, overdraft fees and foreign ATM fees.

Which is safer?

Both debit cards and credit cards come with safeguards to prevent fraud. When you use a debit card at a grocery store or gas station, for example, you are often required to provide a unique PIN. When you shop with credit online, you’re often required to enter your credit card’s three-digit security code. Banks and credit card companies are also constantly on the lookout for any transactions that could be potentially fraudulent. In most cases, they will send mobile alerts as soon as they notice suspicious charges or unusual activity on your account.

That said, credit cards offer a few fraud protection benefits that debit cards don’t. Nearly all of today’s top credit cards offer zero fraud liability on unauthorized charges, which means you won’t owe a penny on any charge determined to be fraudulent. Debit cards also limit your fraud liability but require you to report your lost or stolen card within two business days to limit your liability to $50. If you report after two business days but before 60, your liability goes up to $500. If just your debit card number is stolen and not the card itself, you are not liable for unauthorized charges, as long as you report them within 60 days of receiving your statement.

When it comes down to debit versus credit cards, you might decide credit cards offer better fraud protection. If someone skims your credit card information, for example, you have time to dispute the charge before you’re liable for the payment and the pending charge may never even post to your account. If you use a debit card, though, the funds can be removed from your bank account directly and quickly, making the process of disputing and getting your money back much more time-consuming.

Which is best for online shopping?

Want to know how to shop online safely? Start by choosing reputable retailers like Amazon, Walmart and Target. Then, try to use credit cards for as many purchases as possible. Since credit cards offer fraud liability protections that debit cards do not, meaning online purchases with credit come with fewer risks. So if you’re debating debit or credit for online shopping, pick credit for a safer shopping experience.

Want to reduce your online shopping fraud risk even further? Add your credit cards to a virtual wallet. While storing your credit information on a digital wallet may sound like a fast track to getting hacked, virtual wallets actually make transactions safer. Today’s digital wallets use multiple forms of security to ensure that your credit card number remains hidden during every online shopping transaction. By creating a unique token every time you shop, for example, digital wallets make it very difficult for thieves to steal your credit card information.

Which is best at the gas pump?

Gas station fuel pumps are among the riskiest places to pay since many gas stations haven’t yet implemented EMV chip readers, and credit card skimmers can quickly swipe your information when you pay at the pump. It can be dangerous to use your debit card, which is tied directly to your bank account, over a credit card, especially when the card reader at the pump prompts you to swipe your card instead of inserting the EMV chip.

Even though it’s safer to use credit cards at the gas pump, many people still use debit. But if you’re taking debit versus credit seriously, you might want to consider the security of credit over the ease of debit.

Which is best for your credit score?

If you want to build your credit score, you’ll need to use credit cards—and if you’re trying to establish good credit, you’re going to want to use those credit cards responsibly by making on-time payments and keeping your balances as low as possible. A 750 or 800 credit score doesn’t happen overnight, but practicing good habits with your credit cards and showing discipline to potential lenders can lead to success with loan qualification and lower interest rates down the road.

Yes, it is possible to sign up for one of those alternate credit reporting services that take checking account balances and bill payment history into account when determining your credit score. However, when it comes to debit versus credit and building your FICO credit score with the three credit bureaus, credit wins—hands down.

Which is best for earning rewards?

If you want to earn cash back, points or miles on everyday purchases—not to mention additional perks like complimentary airport lounge access—you’ll want a top rewards credit card. Although a few debit cards offer cash back on purchases, you aren’t going to get as many rewards with debit as you will with credit. While the best cash back debit cards only offer 1 percent cash back, the best cash back credit cards offer at least 1.5 percent on general purchases and as much as 6 percent cash back on popular spending categories.

Which is best for staying out of debt?

When you’re comparing credit cards and debit cards, here’s where debit could come out ahead. If you want to avoid credit card debt altogether, you have two options—either pay off your credit card bill in full every month or make every payment in cash.

Making every payment with a debit card to avoid credit card debt can be a smart financial move. If you are trying to stick to a budget, for example, a debit card can keep you from spending more than you can afford. Likewise, many people working to pay off old credit card debt decide that they’ll only use debit cards until they’ve paid their debt in full.

The bottom line

When you’re considering debit versus credit, which should you choose? It depends. If you use your credit card responsibly and avoid making purchases you can’t pay off over time, the benefits of using credit cards—from increased rewards to enhanced fraud protection—often outweigh the potential costs. On the other hand, there are circumstances in which paying with a debit card can help you save money, whether you’re trying to stick to a budget or avoid credit card debt and interest charges.

If you want the best of both worlds—the security of credit and the cost-effectiveness of debit—you might want to consider using your credit card like a debit card. If you’re going to charge a purchase to your credit card, make sure you can pay it off with the money that’s already in your checking account. As long as you pay your credit card bill in full every month, you’ll be using your credit card “like cash,” avoiding interest charges and staying out of debt—which means that when it comes down to credit cards vs. debit cards, you’ll be making the best possible choice.

Written by
Nicole Dieker
Personal Finance Contributor
Nicole Dieker has been a full-time freelance writer since 2012—and a personal finance enthusiast since 2004, when she graduated from college and, looking for financial guidance, found a battered copy of Your Money or Your Life at the public library. In addition to writing for Bankrate, her work has appeared on CreditCards.com, Vox, Lifehacker, Popular Science, The Penny Hoarder, The Simple Dollar and NBC News. Dieker spent five years as writer and editor for The Billfold, a personal finance blog where people had honest conversations about money. Dieker also teaches writing, freelancing and publishing classes and works one-on-one with authors as a developmental editor and copyeditor.
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