Credit Card vs Debit Card

By Jordan Fabel •  Updated: April 26, 2022  •  6 min read  •  Financial
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Before you choose between a credit card and a debit card, you should know what each one is, exactly. The Federal Reserve Bank of San Francisco’s Diary of Consumer Payment Choice showed that in 2020, credit cards were chosen as the form of payment 27% of the time, while 28% of the time it was debit cards. Cash was only used 19% of the time.

This shows that credit cards and debit cards are used about the same amount of time by consumers. However, both are used more often than cash. Both offer an easier way to track your purchases and many protections compared to cash, as well.

Before you choose between a credit card and a debit card, you should understand the pros and the cons of both. It’s also important to know the differences. Let’s look at both.

Credit Card vs Debit Card: The Differences

You can purchase goods and make cash withdrawals with both credit and debit cards. However, they are done a little bit differently. With a debit card, you will likely be asked to enter a PIN number. This is not necessary with a credit card.

Withdrawing cash is done differently, too. Both a credit card and a debit card will work to take money out of the ATM. However, a credit card allows you to borrow money, while a debit card takes money out of your checking account.

Debit cards also allow you to get cashback (often for free) when making a purchase at a store. If the store allows cashback and you have the money in your account, you can make your purchase and get cash.

Credit cards also give you a monthly bill you will need to pay. Since you’re borrowing money to buy things or withdraw cash, you’ll have to pay it back. This is done through a monthly payment with interest. Of course, you can pay the entire credit card balance off every month to avoid interest.

A debit card will come with a monthly statement. This statement will be the same statement for your checking account.

Credit Card Pros and Cons

Pros

Cons

Debit Card Pros and Cons

Pros

Cons

When to Use a Credit Card

A credit card should be used for building credit, gaining rewards, or for emergencies. Some people will use a credit card for an expense, such as gasoline, every month and pay it off as soon as they get the bill. This can help you build your credit over time.

You can also gain cashback and rewards by using your credit card. Just be sure you are disciplined with your spending or you can get into bad habits with a credit card.

When to Use a Debit Card

A debit card is better for everyday and regular purchases. It can be used to pay your bills and make smaller purchases. You will be spending money in your account, so it can be used to help manage your regular budget.

Choosing between a credit card and a debit card isn’t a one-size-fits-all decision. Many people will have both a debit card and a credit card. They both have uses and can be helpful. Of course, it’s also smart to always have some cash on hand, just in case a merchant won’t accept your card.

Jordan Fabel

Jordan Fabel

Covering different 'paths' that people's lives can take. Creative, foster parent, ticket dismissal, you get the idea. Exploring the requirements, certifications, exams, and obviously, approved courses along each path. I, personally, am the high school dropout son of two teacher parents. So how did I get here? That story is coming soon!