Credit vs Debit

What’s better, debit or credit? Red Tape Chronicles examines the pros and cons. For our money, debit cards are better for controlling spending, but credit cards protect the buyer better, much better, and so we use debit cards to withdraw cash from ATMs and credit cards for transactions.

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  1. alvarotobias says:

    I have a friend that would only use his debit card for all purchases, one day he went to buy groceries and the card had no balance. After contacting Wachovia services they told him that he had made large withdraws earlier that day in Thailand (We live in Georgia USA). He had to wait a couple of days for his money to be returned and investigated. I never use debit only credit for everything, I carry no cash either.

  2. mjgrady says:

    I use my credit card for just about everything, but I also always pay it off in full once per week. I get online every Sunday, check the purchases of the past week to make sure they look legit, then pay it off – it takes maybe five minutes, and gives me the best of both worlds. Maybe that’s more responsibility than the average shopper wants to have though, I don’t know.

  3. enm4r says:

    The only reason to use a debit card is if you can’t get a credit card, because you’ve trashed your credit history. There is really no other reason for habitual debit use, I don’t know why this is debated weekly on the blogosphere.

  4. Blueskylaw says:

    If you have the willpower then credit cards are the way to go. You get 1 month of float, cash back or other “rewards”, and you build great credit by paying the bill off every month. Of course the aforesaid mentioned willpower clause still applies.

  5. harshmellow says:

    I like debit cards in theory, especially to get cash back and avoid dangerous ATMs (especially in my city), but the problem I have had is the hidden fees. It seems that if the store banks at a different bank than yours, and you use a debit card, you will be charged a fee. Or maybe that is only when you withdraw cash at that store. Because of this confusion (and my refusal to pay those fees) I don’t use the debit card. Even though it is the same card, I process it as credit.

    Like other commenters said, the credit purchase is backed by the credit card company, so there is also that layer of protection…

  6. wishlish says:

    PayPal’s Debit Card pays back 1% cashback, for those who like that.

  7. Beerad says:

    Credit all the way. If you’re responsible and can limit your spending/pay your balance in full every time, there’s no downside.

  8. mac-phisto says:

    @harshmellow: merchants can’t charge fees for debit purchases. if you are being charged a fee, it is most likely by your financial institution. you may want to ask about this. most banks don’t charge for debit purchases (whether they are PINed or signed), so maybe it’s time to go looking for a new bank.

  9. bohemian says:

    We have experimented with using our Paypal card for misc purchases, our bank debit for more major transactions and to pull cash.

    The reason being is that we can transfer to Paypal for free, get 1% back and the purchase is deducted within minutes from your balance.

    Our bank has enacted some creative banking processes in order to create new ways to charge people overdrafts.

    I have zero desire to have a credit card that can potentially start charging me untold fees should we ever be late with a payment or some other small print clause creating a new creative fee.

  10. full.tang.halo says:

    I use a CC for 95% of my purchases. Last week one of the bank managers/wal-mart style greeters at my BofA was trying to get me to go to a debit card. I told him no thanks, why should I give up my free points and $50 upper limit on liability even though they extend no liability on their CC’s for a card that does less for me. His rebuttal was that I would never be liable for any fraudulent transactions on their debit card, I quickly corrected him that this was a bank policy that was subject to change and to look at the change in BofA’s ATM charges to see that banks change all the time and I’d rather take the federal protection of CC’s to the voluntary, revocable at any time protection that they extend. BTW I hate being pestered to do my deposits via the ATM, if I want to stand in line and have a bloody teller to do my transaction that is my choice and don’t look so surprised when I blow you off every time I come in cause you cant catch a clue

  11. ipaidipod says:

    Personally, I don’t trust debit cards. I don’t like the idea of a card giving companies direct access to my bank account and there’s more liability if it’s lost or stolen. I have accounts with Citibank and Commerce, and I requested they give me ATM cards without the debit portion and they obliged without a problem. I’ve never missed a payment or charged what I dont have. I don’t need a debit card to control my spending. It’s called a “budget.”

  12. harshmellow says:

    @mac-phisto: Thanks for the tip. I will check with my bank.

  13. FLConsumer says:

    If you don’t mind missing mortgage payments, car payments, utility bills, tuition, etc, while your bank “investigates” why your bank account was drained through your debit card, or some hotel/rental car co/gas station has placed an extra $50-$600 hold on your account, stick with the debit cards. No willpower? Then work on it. We’re all born without any sense of willpower, but we all must learn it at somepoint or our budgets, wallets, and waistlines will suffer. If you’re having problems in this area, one look at typical Americans walking down the street will show that you’ve got plenty of company.

    Credit cards all the way for me. It’s the bank’s money in limbo, not mine. Not to mention the benefits: automatic warranty & theft/damage/loss protection, concierge services, guaranteed dinner & travel reservations, emergency card replacement & emergency cash, etc.

    @full.tang.halo: Mastercard or Visa? Visa did away with the $50 liability for charge cards. Now it’s $0 liability, charge only.

  14. FLConsumer says:

    Oh wait, I just remembered — American’s DON’T walk anywhere now, which is part of the reason they are so fat.

    *EXCEPTION — Manhattan. I was pleasantly surprised (and shocked!) at how slender the people in Manhattan were compared to the walking whales I see in other parts of the USA.

  15. humphrmi says:

    Credit cards are better, assuming the afformentined willpower. For all the reasons mentioned above. I’m just joining the chorus. :)

  16. SadSam says:

    I don’t use credit for anything (except international travel and business travel) and use my debit card for everything. I’ve never had any problem with fees for using my debit card (I always sign as a cc transaction), I get Visa rewards for using my debit card, and I never have to worry about credit card debt. I also travel with my debit card and have not had any trouble with “blocking” from hotels or rental car companies. As a result, I never have to worry about paying a credit card bill, the games credit car companies play or credit card debt. While I always paid off my credit card bills in full each month and enjoyed the reward perks I find not having debt to be much more rewarding.

    I think its great that some people (those smart cookies that read Consumerist) have such will power to control their credit card spending and always pay off the balance in full each and every month for their entire life but most people don’t have that type of will power or budgeting skills and as a result the vast majority of Americans carry credit card debt from month to month.

  17. hollerhither says:

    So glad we hit the “no willpower fat people” topic. AGAIN. Congratulations for being thin, rich, and well-adjusted. Is that what you’re looking for?

  18. NoWin says:

    Re: BY MJGRADY “…Maybe that’s more responsibility than the average shopper wants to have though, I don’t know.”

    Yes, you do. You’re just being kind. Your observation is somewhat correct, in that most people do NOT want to TAKE responsibility for their finances. If a shopper does not want to HAVE responsibility, the only solution is not to use the card. Period. Pure and simple.

  19. viriiman says:

    What about when you’re debit card has a VISA logo? For example, I take my check card, swipe at the store, choose credit, and sign. Would this then be considered a credit transaction?

    I guess that debit in this case is when you enter in your PIN and credit is when you sign – regardless of the type of plastic.

    Please correct me if I’m wrong (as this gets confusing)

  20. mac-phisto says:

    @viriiman: in this discussion, debit transactions are any transactions on a debit card, whether signed or PINed. you are correct that these transactions are sometimes referred to as “credit” or “debit”. they are still debit card transactions though.

  21. goodguy812 says:

    i use a debit card because i managed to find a bank that removed the overdraft “courtesy” to where if i try to spend even one penny more than whats in my account, it declines the purchase, no fees attached. (so if its stolen i at least know how much could possibly be used.)

    secondly my problem with credit cards is if i don’t have the money, i don’t spend it. unless were talking house or car. but if i don’t have available cash for food, clothes etc, i have no business buying those items.

  22. goodguy812 says:

    i have nothing to gain for spending money i don’t have.

  23. UpsetPanda says:

    Debit purchases require a PIN. Hitting “credit” means that it makes the purchase without requiring use of a PIN, which (to me anyway) makes it more dangerous that someone steal a debit card. They can rack up the purchases and never have to know your PIN number.

  24. SilverStar95 says:

    I use a credit card when possible, because it keeps the number of transactions down to a minimum on the bank statement. And too many transactions means extra fees.

  25. spinachdip says:

    For most day-to-day purchases like groceries, I use my debit card since I get frequent flier miles – those small purchases really add up. Even though I know I can budget myself and just pay everything off at once, I just like knowing that my bank account pretty much reflects how much money I have.

    But for big ticket items and for reservations, I use credit for obvious reasons (anyway, you can’t rent a car without a credit card).

  26. Sidecutter says:

    @enm4r: Get off it. Some of us don’t have credit cards by *choice*. The only credit card I hold is a company card that I needed to apply for due to travel. They pay it off, I get a free boost on my report along with the car payment, cellphone payments, etc. If I leave the job, I’ll ditch it, and won’t even think twice about doing so.

    On another note, some debit cards now offer many of the same protections and bonuses credit cards do. Mastercard recently upgraded all of 5/3 Bank’s debit cards to have things like the same extended warranty protections that most credit cards do, along with several other similar “CC Only” perks.

  27. spinachdip says:

    @Sidecutter: Not to mention that credit card issuers love, love, looooove people with bad credit.

  28. Trojan69 says:

    @mac-phisto: Many gas stations in SoCal charge a transaction fee for usage of either a debit or credit card. Typically, its 35 – 50 cents.

    I know this is supposedly a prohibited practice for a VISA/MC merchant, but considering how huge these entities are (the oil corps who own the stations) the practice somehow continues.

    The other prohibited practice that is frequently ignored? Minimum purchase requirement. Here again, if you want to be a merchant who accepts this plastic, you may not demand a minimum qualifying purchase. Yet, countless places do.

    The world sucks, basically.

  29. anatak says:

    @FLConsumer:
    “@full.tang.halo: Mastercard or Visa? Visa did away with the $50 liability for charge cards. Now it’s $0 liability, charge only.”

    Charge only? Not quite. Visa’s zero liability was extended to their Visa branded debit cards seven or eight years ago.

  30. Buran says:

    @full.tang.halo: That’s exactly why I use a credit card for everything. No liability beyond $50, and if someone gets the number, no money actually leaves my real account. I have no debt, just month-to-month bills that are paid in full, what’s not to love? Now I just need to get a rewards card of some sort and start using that.

  31. Buran says:

    @anatak: Yes, but that’s still just their policy and not federal law. Federal law doesn’t require a liability cap on debit cards but it does on credit cards.

  32. mac-phisto says:

    @Trojan69: technically, yes. the way they get away with it is saying that is saying that they are offering a “discount” for using cash, not charging a fee for using a card. otherwise they are in violation of their merchant agreement with VISA.

    @anatak: you’re correct, but bear in mind that VISA’s zero liability only applies to transactions that pass thru their network. PINed transactions are processed thru ATM networks & are therefore NOT covered under their zero liability.

  33. mistaketv says:

    I’m pretty sure it would have saved me $70 in overdraft charges, had I chosen debit instead of credit on a few recent purchases. This is thanks to Bank of America’s policy of processing credit card charges not in the order they were made, but in order of dollar amount, greatest to least. I made two smaller purchases which I had the funds to cover at the time, followed by a third, larger purchase that I did not have funds to cover. Had I processed them as debit, they would have been processed in the order they came in, or so I was told by a BoA rep who also informed me that the reason BoA processes transactions largest to smallest is not to generate more overdraft fees, but because CUSTOMERS ASKED THEM TO. It seems, so the line goes, that customers wanted their “larger, more important payments like their mortgages and car payments to go through first,” so BoA, nothing if not a slave to the wishes of their customers, just had to change the policy to oblige. (And yes, I know that I’m a moron for not knowing how much was in my account and for not reading the fine print when opening the account. Furthermore, I know you would never make such careless mistakes.)

  34. GiGiG says:

    Living in Miami, I would say credit. There is more protection from a credit card. Between ATM scams and Gas Pump scams (where crooks steal the information on the magnetic strips on the back of your card to duplicate a credit card with their name), I feel more comfortable using my Credit card now. I would rather live without a credit line than cash from my bank account. Also, because of the phony claims of identity theft, banks are taking longer to replace money stolen from accounts.

    Also, many Credit cards have reward programs. I feel it’s more important now than ever to shop for a credit card and know exactly what you get. It might earn you the airline ticket you couldn’t purchase because gas and groceries are too high.