Debit vs. Credit – Which Card is Better?
The pros and cons vary, depending on what you purchase.
Credit and debit cards have become a way of life. They’re convenient, easy to use and don’t require you to carry a lot of cash to make purchases. Also, purchases made online or by phone require some type of card.
Which one is your best option? Only you can decide. Each card comes with its own set of pros and cons. Here are factors to consider.
- Instant line of credit
- Option of paying the entire balance at once or making monthly installments
- Allows greater purchasing power, debt consolidation or emergency funds that you pay over time, in installments that fit your budget
- Provides greater consumer protection on fraud liability and if your card is stolen
- Can help establish credit history for other purchases
- When there’s a dispute over a purchase, the card issuer can withhold payment from the seller until the dispute is resolved
- Interest rate is typically higher than other types of consumer loans
- Interest accrues on unpaid balances
- If you aren't careful, your credit card balance can grow out of control
- Card issuers can raise your interest rate after you’ve gotten the card
Note: The Federal Reserve has a credit card repayment calculator to illustrate the cost of carrying a balance on a credit card. This calculator will tell you how long will it take to pay off a credit card if you only make the minimum payment. It will also tell you how much interest you’ll pay over the course of the loan.
- Uses money you have in your checking account – there is no loan to repay
- No interest rates, monthly bills or finance charges
- Debit card transactions are like cash transactions – the money changes hands quickly
- Can use to get cash back at transactions
- May be easy to overdraw your checking account
- Places a hold against funds in your checking account, preventing you from using those funds for anything else
- If card is stolen, may be more difficult to get your money back (Under the Electronic Fund Transfer Act, if you report your card stolen within two days, your maximum liability is $50. If you don't report the theft for up to 60 days, you could be liable for up to $500.)
- More risky to use online since it is directly connected to your checking account
- No option to withhold payment in the event of a dispute with a merchant
Having both a debit and credit card offers the most flexibility in purchasing. However, before using any card, whether issued by a financial institution or merchant, be sure you understand its features, rules, regulations, policies and services.