Debit or Credit?

Advertising Disclosure: When you buy something by clicking links on our site, we may earn a small commission, but it never affects the products or services we recommend.

Image Not Available

Using plastic has become so accepted its hard to imagine shopping without it. And now you even have a choice of which plastic to use: a debit card or a credit card.

2006 was the first year that debit card transactions topped one trillion dollars. So they’re certainly popular. But are they better than credit cards?

If you carry a balance on your credit card, or have trouble with debt, a debit card is obviously your plastic of choice. But if you don’t carry a balance or pay an annual fee, you’re better off with a credit card.

There are three reasons why. First, debit transactions take the money out of your account immediately. Using a credit card allows you to earn interest on your money until the bill comes.

Second, people who use debit cards are more likely to overdraw their accounts. According to Consumer’s Union, a person using a debit card more than 20 times a year pays an average of $223 in bounced check fees. The one who doesn’t use a debit card at all pays an average of $40.

Finally, a credit card gives you greater protection if something goes wrong with your purchase, and exposes you to less potential liability if its lost or stolen.

Bottom line? If you live on a plastic diet, you’re probably better off with a no-fee, no balance credit card than you are with a debit card. But remember, there’s nothing wrong with paying with good old cash either.

Get smarter with your money!

Want the best money-news and tips to help you make more and spend less? Then sign up for the free Money Talks Newsletter to receive daily updates of personal finance news and advice, delivered straight to your inbox. Sign up for our free newsletter today.