Debit or credit? The good, the bad and the potential perks of using both kinds of cards

When it comes to meeting financial goals, both payment forms should have a place in your wallet

Debit or credit? The computer-generated question probably pops up millions of times each day when we tap or slide our debit cards to pay at a pump, grocery store register or our favorite coffee shop. It’s also something we often ask ourselves when making decisions on how to pay for a purchase.
Besides the obvious differences — one is a loan and the other relies on money already in a checking account — have you ever stopped to think about why you probably need both payment forms for a better financial future? Here’s a breakdown of the pros and cons for credit and debit cards.


They help you live within your means. By choosing this option, you spend money already in your account, which means you don’t have to worry about paying interest. (One exception is if you overdraw your account and you have overdraft protection as a line of credit. Clearly, tapping into this protection is something you want to avoid.) Using a debit card means when the money’s gone, it’s gone, and you can’t use the card again until more money is deposited into your account.

There are fewer fees. Without a monthly bill coming your way, there’s no due date to miss. There are other bonuses: No late fees. No compounding daily interest. No ding on your credit score for missing a payment.

You often spend less. When using a debit card instead of a credit card for everyday purchases, you’re likely to spend less. You also tend to spend less when you use cash instead of your debit card and even less when that cash is a larger bill. Why? The closer the money feels to real money, the harder it is to part with it.


Overdraft fees add up. If you don’t opt-out of overdraft protection, fees for spending more than you have can quickly add up. It’s better to consistently track how much you have in your account so that you don’t overdraw in the first place. Just signing onto your accounts on a daily or every-other-day basis can help.

Not as many benefits. While perks such as miles have increased on some debit cards, they are still far greater on traditional credit cards.

High authorization holds. Businesses including hotels and gas stations often hold a certain amount of money — it’s not unusual for a $100 hold at the pump and hundreds more at a resort. When the hold is placed on your debit card, the block can make it tough to spend your own money even if you have more than enough in the account.


Rewards galore. Despite the pandemic travel pause, credit card issuers continue to entice cardholders with frequent flyer miles, cash back bonuses and other perks, just for using their cards. These deals make it important to watch your spending because people can spend more on rewards cards than those who don’t have them.

It’s good to have history. Building up a credit history is key to establishing and maintaining a good credit score. So when you apply for a home or car loan, a lender can decide if you qualify and how much interest to charge you. A better credit score means a lower interest rate and more money left in your pocket.

Consumer protection. In an era when so much spending has moved online, this benefit is big. If you are genuinely dissatisfied with a purchase or a service, or you never received an item, you can ask your credit card issuer to withhold the payment.


Compounding Interest. This is a big one. If you don’t pay your balance off in full each month, you will be charged interest, sometimes to the tune of 29% or more.

Late fees and then some. If you don’t pay your bill on time every month, you’ll not only have to pay a fee, you’ll also take a hit on your credit score. And then you’ll be charged interest on the balance and a late fee.

Buyer Beware. Some people say using plastic doesn’t feel like they’re spending real money. Research shows people often spend more on credit cards than they do on debit cards or with cash, which can quickly turn into mounds of debt.


You can gain and keep control of your money by using a debit card for everyday purchases such as gas and groceries, as long as you stay on top of how much is in your account. Use online banking to help keep track of debit spending.

To build and maintain a healthy credit score, you should have at least one credit card, and use it for a small purchase once a month, then pay it off in full. Alternatively, if you feel like you’re in full control of your money, using a credit card for all purchases and then paying it off monthly can help you reap significant rewards. And when making all purchases, try not to use more than 30% of your credit limit.

With reporting by Casandra Andrews

Jean Chatzky

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