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Credit Card vs. Debit Card

Some people prefer using a debit card instead of a credit card because it helps keep them from acquiring debt. With a debit card, the money used to pay for purchases is deducted directly from the cardholder’s checking account. A credit card, on the other hand, accumulates debt over the course of the month and sends the cardholder a bill. If the bill isn’t paid in full, any remaining balance is carried over to the next billing period, during which time interest is charged on that balance.

 

A debit card eliminates the prospect of carrying debt and accruing interest charges. It’s much like using cash in that the transaction is paid in full and completed at the point of purchase. However, credit cards also have their advantages, so it may be worth comparing the two to determine which payment method is best for your situation.1

 

Financial Protection

If a debit card (or just the card number) is stolen, your bank checking account may not be protected. A cyber thief may be able to drain the account before you even realize the card was stolen. The following details the liability for a lost or stolen debit or ATM card:2

 

  • Report immediately and before the card has been used: $0
  • Report within two business days: $50 or less
  • Report between two days and 60 days after your bank statement is issued that shows the unauthorized use: $500 or less (depending on the amount fraudulently charged)
  • Failure to notify the bank within 60 days after your bank statement is used that shows the unauthorized use: Any amount

 

Credit cards, on the other hand, enjoy stronger protections. By law, a cardholder is responsible for only $50 of unauthorized use on a credit card regardless of when the theft is reported. However, many issuers waive even that amount.

 

Lock-Up Cash

With a credit card, any purchase or reservation you make is applied to your card, and you are not required to pay it until the bill comes. However, with a debit card, a hotel or rental car company, for instance, will generally put a “hold” on the cash needed to pay the estimated charges before you even use the service. The amount could be more than the total you spend because it assumes taxes, fees and incidentals.

 

Rewards Points

Credit cards often enable account owners to accrue valuable points based on the amount of their charges, which can be applied as discounts for other purchases or as cash back. Debit cards offer no such rewards incentives.

 

Improve Credit Score

Responsible use and timely payment of credit card debt contribute to a positive credit score. Debit cards do not report card use to credit-monitoring agencies.

 

Finance Purchases

Those who need to make an expensive purchase before they have all the cash available may use their credit card to basically finance the expense. This enables buyers to pay for a large immediate expense, such as a car repair, over time if they don’t have enough money in their bank account.

 

1 Kira Brecht. CompareCards.com. Feb. 11, 2018. “Why Credit Cards are Better than Debit Cards.” http://www.comparecards.com/guide/credit-cards-better-than-debit. Accessed Feb. 16, 2018.
2 Justin Pritchard. The Balance. Jan. 26, 2018. “Lost or Stolen Debit Cards: What to Do Now, Your Risks.” https://www.thebalance.com/stolen-debit-card-risk-315319. Accessed Mar. 12, 2018.