Debit Card or Credit Card: Which is Right for You?

Paying with plastic is par for the course these days, even for small purchases. The question is, which kind of plastic is best? People tend to have strong opinions about debit versus credit cards.

Debit card diehards are the modern-day version of cash-only consumers. They won’t spend what they don’t have and using a debit card eliminates any temptation to overspend.

However, there are plenty of people who could pay with debit but opt for credit cards instead. Often, it’s because they are earning cash back or racking up points. We all know at least one frequent-flyer fanatic who takes great vacations using credit card miles.

The debit-only approach sounds smart. But those credit card perks sound smart, too – why not get a little payback on money you’ll be spending anyway? It really can be difficult to know which is best. Let’s take a closer look at arguments from both sides.

Team Debit vs. Team Credit

The biggest rallying cry for Team Debit is that if you’re using a debit card, you can’t fall into the trap of accumulating credit card debt. According to Credit Card Market Monitor issued by the American Bankers Association, 29.5 percent of credit card users pay off their balances every month. These “transactors” (also known as “convenience users”) get all the benefits of credit without paying interest.

Meanwhile, the ABA report shows that more than 42 percent of consumers do carry balances – often very large balances. According to NerdWallet, the average household with credit card debt has balances totaling $16,883 and pays a total of $1,292 in credit card interest per year. Ouch.

Credit card debt is expensive. It can become financially crippling. That’s why some financial advisors strongly recommend consumers avoid credit cards altogether. Basically, using a debit card gives you the convenience of plastic combined with the discipline of cash. When you make a purchase, the money has been spent.

Plus, these days most credit cards have a Mastercard, Visa, American Express or Discover logo and can be used just like a credit card for most purchases. Many debit cards even offer cash back programs and protection from fraudulent charges on par with what credit cards provide.

Nonetheless, credit cards do have strong proponents. The Investopedia article 10 Reasons to Use Your Credit Card offers a good roundup of the arguments made by those on Team Credit.

To start with, there are lots of perks. If you have good credit, a new credit card may offer a signup bonus. You may qualify for a card that offers cash back, frequent-flyer miles or points. In addition, many credit cards offer consumer protections, such as travel insurance and rental car insurance, all of which can save you money.

And even the staunchest Team Debit supporter has to concede that some purchases can be more difficult with a debit card. If you want to book a hotel room or rent a car, it will be harder to do with a debit card. If you find a company that will accept a debit card, they will likely require a cash deposit or put a hold put on funds in your bank account as a security deposit. If you travel overseas, you may also have difficulty using a debit card.

Finally, if you have no credit or bad credit, getting a credit card and using it responsibly will help you build your credit score. There are some people who opt out of using credit cards completely, thinking it’s the safe, responsible thing to do – only to find they can’t qualify for a car loan or mortgage because they don’t have a sufficient credit history.

So what does all of this mean to you?

Take a Time Out

Debit and credit card use is actually a spectrum. It’s the rare consumer that doesn’t have at least one credit card, and there are good reasons to have one, including maintaining a credit history.

Some people use their debit card all the time and only opt for credit when it’s absolutely necessary. Others use credit cards for virtually all their purchases and pay the balance in full every month. But many of us fall somewhere in the middle.

Credit cards can offer substantial perks. There are some situations where using a credit card may be safer or more convenient. For those highly disciplined users who always pay off their balances, there really isn’t a downside. On the other hand, debit cards offer all the convenience of credit cards, and some even offer perks like cash back, without the dangers of debt.

Rather than choosing sides based on your fears or desires, step back and examine your spending habits. Try to look at your situation objectively. Think about the combination of debit and credit that makes the most sense for your financial priorities and goals.

Most people develop spending habits over time. Maybe what used to make sense doesn’t fit your current situation. Were you single and now you’re married? Were you married and now you’re divorced? Has your income increased or decreased? Are you finding it harder to pay off credit card balances? Or have you become more disciplined and more able to manage credit responsibly? Are you using credit when debit would be wiser or vice versa?

If you didn’t have your current debit cards and credit cards, what would the ideal mix look like? Start from there and develop a plan.

Focus on “Team You”

Debit cards and credit cards are financial tools. Like any tool, they can be used well, or used badly.

If you’re on Team Credit for most purchases and pay off your balances each month, then perhaps it’s time to shop for a card with better perks. On the other hand, if you’re carrying balances and racking up interest, it’s time to reexamine your budget and spending habits. You may need to shift to using a debit card for most purchases while you pay down your consumer debt.

If you’ve been on Team Debit, out of choice or necessity, are there compelling reasons to add a credit card to your spending routine? Could using a credit card strategically help boost your credit score to support long-term goals like owning a home? Would you benefit from some of the perks or protections offered by credit cards when making some types of purchases? Is there a better balance of debit and credit that would allow you to reap more benefits from both?

Set aside your preconceptions. Make sure you understand the pros and cons of debit and credit cards. Be brutally honest about your own strengths and weaknesses when it comes to managing money and handling credit. Then map those facts against your spending habits and financial goals. That way, you can choose the financial tools that make the most sense for your situation.

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