Debit or credit? While these two forms of payment might seem to work the same when you’re at the register, what comes after means two totally different things for you and your bank account. Let’s do a deep dive into the debit vs. credit showdown and see who takes the crown.
Debit vs. Credit: What’s the Difference?
What is a debit card?
A debit card uses your own money (pulled directly from your bank account) to pay for something. It’s basically like cash, except you get the convenience of using a card instead of carrying around a wad of paper money when you make a purchase.
What is a credit card?
A credit card borrows money from a lender to cover a purchase, instead of using your own money. You will have to pay that money back—and on time. And if you don’t? Well, then you’ll get hit with interest, late fees, and credit card debt (yeah, not fun).
It’s also worth mentioning that there are different kinds of credit cards out there. Depending on your age, credit history, and lifestyle, you might get offers for specific ones.
When Can I Use Debit or Credit?
Like smartphones and skinny jeans, both debit and credit cards are pretty much everywhere nowadays. Whether you’re shopping for a dog sweater online or getting your weekly groceries, you’d be hard-pressed to find any business that won’t accept those two types of payments. Although, your favorite food truck or pop-up shop at the local flea market might only take cash. (Btw, paying with cash when you can is definitely your best option.) But just because you can use a credit card, it doesn’t mean you should. Let’s dig into why using debit is the smarter choice.
Debit vs. Credit:
In 2021, the average credit card interest rate increased to 17.13%. Multiply that by the 55 million American households who have a credit card balance ($787 billion total), and credit card companies stand to make $134.81 billion in interest alone.
When you swipe a credit card, it feels like you’re playing around with imaginary money, so it’s easier to spend more of it. But this isn’t a game of Monopoly—if you’re putting something on credit. If you don’t have the money right now to buy something, you shouldn’t buy it. Period.
Debit vs. Credit: Reasons Why People Use Credit Cards
Credit card companies have spent a ton of time and money trying to convince you that credit cards are the only way to go. In fact, eight in 10 adults in America (83%) have at least one credit card. The credit card companies in their shiny towers are counting on your participation to make them a profit.
I pay off my credit card every month. What’s the problem?
Truth: Do you, though? Do you really? As long as you do then this can surely build credit FAST!
According to the Federal Reserve, only 48% of people with a credit card actually pay their bills in full every month. And if you carry a balance (no matter how small), you’ll end up paying more than if you’d paid with cash.
But let’s say you do pay off your credit card bill each month. You might think you’re staying on top of it, but what happens when things get really tight? Imagine your fully stocked refrigerator suddenly goes out. You do your normal routine—lay down your credit card to cover the $1,500 cost for a new one. But you forgot there’s already a $750 balance on the credit card from all the other purchases you meant to pay off at the end of the month. And now, thanks to your faulty fridge, there’s an extra $1,500 tacked on there.
You don’t have $2,250 lying around to wipe out your credit card balance and buy new groceries to replace the ruined food. So that balance is going to have to sit there for another two or three months.
The key is not forgetting and paying your balance within at least a couple weeks, since the money is on your debit card! As long as you pay in full before the due date this method can build your credit very fast! Buy on credit and pay it with your debit. Simple.
I get perks for using my credit card.
Truth: Yeah, the idea of getting credit card rewards sounds nice. Maybe you’ve even been tempted to get a store credit card to get that discount at Old Navy. But like we said before, interest can add up fast. And if you’re carrying any kind of balance at the end of the month, any points you might’ve earned from swiping your card are pretty much canceled out after the fees you pay.
The Possible Dangers of Using Credit Cards
Again, if you pay off the full balance before the due date, credit can be a great credit builder!
Credit cards are not something to mess around with. They’re basically the cigarette of the financial world. Will they take out everyone who uses them? Probably not. But they’re doing some serious damage to a lot of people’s lives.
“When you use a credit card, it’s like you’re living your life through a rearview mirror! You’re living in the past and paying for things you’ve already done movies you’ve already seen, and food you’ve already eaten.” And that stinks!
Having a credit card and clinging to your reward points will never make you a millionaire. But you know what will? Getting on a budget, paying off debt, and saving up for the things you need to buy. That’s how you achieve true financial success.
Debit vs. Credit:
If you make sure to spend the credit on things that you actually need and not just want; paying with credit and paying the balance from your debit card can be a great way to build credit! Knowing that you have the money on your debit card, there shouldn’t be any issues with paying that balance as soon as the payment posts on your credit card. The key is being SMART and not buying more than your debit card can payback. This can be a great tool to use, why just pay with your debit card when you can build credit with a credit card? You can do it! Your credit can jump tremendously by just following that easy step and before you know it the credit card will continuously increase your credit limit!