Credit or Debit Card? When to Use Each One

Published July 2021
Computer Keyboard with Credit Card vs Debt Card written on keys

Credit cards offer you great value in many ways, but debit cards can keep you out of debt. Make an informed and responsible decision about how you pay.

Key Points:

  • Credit cards offer scores of advantages over debit cards if you use them responsibly.
  • Debit cards can, however, keep you out of debt.
  • How you pay is a matter of personal preference, but you should know what each option entails.

When was the last time you paid for something with actual cash? According to a 2018 Pew Research Center study, roughly three in ten US adults revealed that they make no purchases with cash in a typical week, and among those under the age of 50, a startling 52% do not pay with cash.

Since that research was published, the cashless trend has accelerated, largely due to the global pandemic and the ease with which contactless payments can be made. In December 2020, Jodie Kelley, CEO of Electronic Transactions Association, told CNBC:

“Over the past six to eight months, we’ve seen the use of cash decline even further, and that’s a trend I think that we’re going to see continue. When the pandemic hit, people really started paying attention to how literally they were spending money and people found that they didn’t want to touch cash and exchange cash.”

Debit and Credit Card Usage by the Numbers

In the absence of cash, the go-to payment choice for most Americans is either a debit or credit card. According to a Federal Reserve Payment Study released in 2020, debit cards are used almost twice as often as credit cards, but the value of credit card payments exceeded the value of debit card payments by almost 30%.

In its 2020 Survey of Consumer Payment Choice, the Federal Reserve of Atlanta reported that:

  • U.S. consumers made 68 payments per month on average in 2020
  • On average, debit cards were used most often for 23 of those payments, followed by credit cards (18 payments) and cash (14 payments)
  • 97% of consumers had some type of payment card (debit, credit or prepaid), with 85% owning a debit card
  • 68% of consumers used a debit card each month, and 63% used credit cards

BlogImage_PreferredPaymentMethodbyPercent(Source: 2020 Survey of Consumer Payment Choice)

Interestingly, there are generational differences that come into play for payment preferences. Here’s a look at the generational breakdown, according to the Federal Reserve’s 2021 Findings from the Diary of Consumer Payment Choice:

BlogImage_PaymentPreferencesbyGenerationAll of this begs the question, when should you use a debit card and when should you use a credit card instead?

Debit or Credit?: The Quick Take

Whether to use a credit or debit card depends on several factors such as your comfort with debt, your level of commitment to safeguarding your identity, and your willingness to accept certain risks to receive certain rewards. Here’s a quick take on the debit vs. credit issue:

  • If you can’t stand the thought of debt for even a moment, using a debit card over a credit card is the right choice for you.
  • If you like the idea of delaying payment for purchases, at least temporarily, a credit card is the way to go.
  • If you tend to carry a balance from month to month on your credit cards, getting into the habit of using your debit card instead can safeguard you from accumulating extra debt.
  • If security and identity protection is a top concern for you, credit cards afford you more protection than do debit cards.

Now, let’s look at why and when to use both types of payments in a bit more detail.

When to Use a Credit Card for Payment

A credit card can be useful, provided that you maintain good financial discipline and avoid accruing crippling debt. Here are some solid reasons for reaching for your credit card for your next purchase:

When You Are Concerned with Safety

Fraudsters have developed a staggering array of methods to get their hands on your credit or debit card information. One such method is to install devices called skimmers on card readers in various locations. These devices give thieves access to your money.

If you use your debit card at a gas station or another sketchy location and inadvertently give up your card information to fraudsters, they get to withdraw or spend money directly from your checking account. You lose actual money to fraud and the impact is immediate.

If the same mishap occurs while you’re using your credit card, you get a charge on your account that you can easily dispute. Credit card providers such as Visa and MasterCard cover unauthorized purchases with zero liability. Thus, although compromised, you won’t end up yielding your hard-earned money to thieves.

When You Want Protection against Dishonest Merchants or Service Providers

Imagine the following scenario. You have a team of contractors renovating your kitchen. They install floor and wall tiling and whatever else you request. With the job seemingly well done, you pay them $2,000 with your debit card, and off they go.

The following day, you notice a floor tile cracking. And a wall tile comes loose, crashing onto your brand new induction cooker, shattering it. What can you do to recover your money from the contractor?

You can turn to your state licensing board for help. Such a process is a lengthy one, however. And throughout it, the contractor can hold your money hostage.

On the other hand, if you pay with a credit card, you can dispute the charge and likely recover your money much more quickly.

When You Want Perks like Insurance

You may not realize it, but your credit card comes with many perks. It may give you:

  • Extended product warranties
  • Travel insurance
  • Rental car insurance
When You Are Building or Improving Your Credit Score

Using your credit card for purchases and paying off the balance on time is one way to prove your creditworthiness to lenders.

Using your credit cards wisely works both for building credit if you do not currently have a credit score and improving your score if you do. On the other hand, you can’t use a debit card to build up your credit score.

When You Need a Payment Method Accepted Almost Everywhere

Many product and service providers prefer that you pay with a credit card. Hotels and car rental companies love credit cards because they find it easier to collect payments for any damages incurred by you while you use their products.

Credit cards enjoy universal acceptance.

Some merchants may even offer discounts to encourage credit cards, and thus, you can save money. In a foreign country, merchants may not accept your debit card, but worldwide merchants welcome credit card payments.

When You Live for Reward Points

Credit cards offer you extra value through various deals that debit cards can’t match.

  • Cashback deals reward you for your purchases by returning 1-6% of what you spend.
  • Credit cardholders earn rewards points for certain purchases they make, then redeem these points for restaurant meals, gift cards, travel perks, etc.
  • One-time bonuses, like some deals you get when you open a new credit card, represent a significant financial incentive for many.
  • Frequent-flyer deals allow credit cardholders to buy plane tickets with the rewards they earn.

When to Use a Debit Card

There are few instances when debit cards trump credit cards, and if you are debt-averse, you will appreciate these more than many of the perks mentioned above.

When Temptation is Hard to Resist

If you have problems with impulse shopping and have had to deal with out-of-control credit card debt, a debit card can be your best friend.

When You Want to Avoid Late Payments and Fees

Using a credit card only makes sense if you can make timely payments on your balance. Otherwise, you will likely book a one-way ticket to credit card debt. With a debit card, your payment is made on the spot, with no nasty surprises later.

When You Know You Overspend

Some people tend to overspend on credit. If you know you have such an inclination, stick to using your debit card. Through reckless use of credit, you can ruin your credit score and your financial future. Credit can be expensive. If you can’t afford it, it will land you in trouble, in need of credit card help.

When Your Credit Limits are Low

If you can only get a credit card with a low limit, you may want to use your debit card instead. Doing so will prevent you from inadvertently exceeding your credit limit and incurring penalties and fees.

When You Already Stress about Debt

If you are already in serious credit card debt and stressed out about it, it is important to discontinue the use of your credit cards until you can get back on track financially. Using your debit card instead can help you learn to think more responsibly about where your money is going and make the necessary changes to get back to financial health.

Handle Debt Issues Proactively

The responsible use of credit requires discipline and financial literacy. Sometimes, however, even the most disciplined users can land in credit card debt due to a change in life circumstances such as the loss of a job or an unanticipated medical emergency.

If you are currently struggling to pay off your credit card debt, know that there is always help available to you. Contact a ClearOne Certified Debt Specialist at 866-481-1597 to discuss the credit card debt relief options available to you and to get a free savings estimate.

yes you can

The data and statistics referenced come from multiple credible resources that are cited throughout. ClearOne makes no representations or warranties regarding the accuracy of the information from these various resources. The content is for informational purposes only, you should not construe any information on this website as financial advice. All content on this site is information of a general nature and does not address the circumstances of any particular individual or entity. Nothing in the Site constitutes professional and/or financial advice, nor does any information on the site constitute a comprehensive or complete statement of the matters discussed. Please consult a professional financial advisor for your personal financial advice.

Topics: Credit Card Debt