Credit Card vs Debit Card for Everyday Use

Let’s say I have zero debt, a comfortable savings account balance, and a healthy income. I prefer not to carry/use cash. For my daily purchases I can use either a debit card tied directly to my checking account, or a credit card that I (actually do) pay off in full every month. Both are MasterCard branded.

Is either option “smarter” than the other?

The only advantage to the latter I can think of is that credit cards tend to have better fraud protection (and frog protection). Is that enough to make it a clearly better choice? Is there anything I’m overlooking in the debit vs credit issue?

CC gives you an interest free loan, and can give cash back, miles, or other incentives.

I use my AMEX rewards card for every purchase I can use it for. It gets paid off every month. The reward points we accumulate we use for free flights and hotel stays for vacations.

CC for daily use - accrue interest on bank account, get miles or cash back, and fraud protection.

I’ve had my debit card compromised before. Even though the bank straightened it out fairly quickly, having the checking account cleaned out is not an experience I’d want to deal with again. When the CCs are compromised, I can just have the charges cancelled with little hassle and no loss of cash.

I totally forgot about those! :smack:

Again: :smack:

It seems that the CC is, in fact, the obvious choice. Does anyone have any reasons to use the debit card instead?

I believe from the merchant’s perspective, the processing costs for debit transactions are lower than for credit transactions. Previously, merchants were prohibited from discriminating against credit card users, but I believe that may have changed. So the merchant may have an incentive for customers to use the lower-cost option.

For you, no.

If you’re a spendthrift and incapable of handling credit responsibly, it’s best to only spend money in hand. A good plan for those just learning to handle money/income/expenses who may be susceptible to impulsivity and an absent or incomplete sense of time and consequences, e.g. high school or college students.

Indeed, if paying off your card every month is not an issue, use one that offers rewards. It’s not too difficult to rack up a few hundred dollars in cash back rewards in a year.

We use one low-limit credit card for daily stuff, and pay it off each month. The cash back rewards are a few dollars per month, plus it’s easy to track spending. And the consumer protection is better than with the debit card. But there are a couple of small businesses where I only use debit, if I don’t have cash, because it’s cheaper for the merchant, and/or me - gas prices are discounted by 3-5 cents per gallon at my favorite c-store if I pay cash or debit, for instance. And it’s my preferred stop anyway, because the owner is a very nice man and gasoline is almost always the cheapest in town and it’s close by. Similarly, the shop that works on our lawn equipment offers a discount for cash or debit payment, because the transaction costs less for them, and I’ve known the owners forever and prefer to use the method of payment that’s best for them.

If your card is stolen or compromised in one of the massive data breaches we hear about every few months, you could lose more money if you use the debit card. The liability limit for a credit card is capped at $50, but for a debit card it can be up to $500 if you don’t report a fraudulent charge within 2 days.

Now for the most part, if you’re dealing with a reputable bank and you’re a valued customer, you won’t end up losing much (if any) money in either case. But if your debit card is lost you might also have to deal with a frozen checking account for a nontrivial amount of time. That’s a lot more trouble than simply waiting for a replacement credit card.

I’ve had compromised credit cards a few times, each resolved within a week or two with no liability. I’d much rather deal with that than a possible bounced rent check because of a frozen checking account…

I usually carry cash, credit cards, and a debit card.

Most purchases are paid with the credit cards and they get paid off each month. I pay for small purchases and tips with cash. My debit card is used only to get cash from an ATM when I specifically need cash.

My wife is a banking attorney. Issues of consumer protection under the various regs are her bread and butter. All that nasty fine print you sign to get a loan or open a bank account? All that mumbo jumbo you get in the mail every year changing your terms? She writes that stuff. We use no debit cards. Not once, not ever.

As others have said above: If you can use a credit card responsibly, then there is no comparison. Debit cards put all theft & fraud risk on you, none on the bank. Credit cards are the reverse: you’re protected and the bank’s on the hook.
The banks far prefer you to use debit cards unless you’re going to leave a high interest balance on your credit cards. It’s pretty simple to understand that whatever they want you should do the opposite. And I say that as somebody who enjoys fairly positive relations with a bunch of banks and bankers.

I wish I could trust myself with a major credit card but since the recession, my career and income have been quite irregular. I was caught once with credit card debt that I couldn’t easily repay. You can call me irresponsible but I called it bad luck and recession. I did pay off the card, but not quickly. I use a debit card now and, since my work project ended last week and the next one is delayed due to issues beyond my control. I am grateful to not have credit card debt hanging over my head at the moment.

You’re being very responsible. Planning ahead to avoid getting in a worst-case crack is an excellent approach to finances. And the rest of life.

Sorry if I hit a nerve.

I’d imagine that when it comes to having an account compromised, the risk of that actually occurring are the same for a credit card and a debit card. So the only question you need to ask yourself is would you rather have your money at risk, or someone else’s money at risk? Use the credit card.

I’m with Lacunae Matata. A fragment of the comment:

“…because the transaction costs less for them, and I’ve known the owners forever and prefer to use the method of payment that’s best for them.”

This. Indeed, if the transaction is substantial I’ll even write a check in lieu of debit to maximize their profit. As Lacunae indicated, these are local (i.e., not corporate) merchants in my community that I know well and I don’t mind giving them that little extra boost.

I totally agree. All that six-point font on your statement; in a past life, I’ve put about ¼ of it there. I don’t own a debit card, I have an ATM-only card (no Visa/MC logo) because I used to run debit card programs & have seen some of the horrors of an account getting compromised. One woman had her card stolen on the 31st/1st of the month. She had just paid all of her bills & they all bounced because there was no money in the account when the checks/debits were presented. It cost her a couple of hundred in bounce fees, not from us but from the mortgage/rent co, insurance co, car loan co, etc. Your creditors are under NO obligation to you if your debit card/checking account is compromised/funds stolen.

Most companies will give you one courtesy fee waiver in a 12-month period. If you goofed & paid late eight months ago, guess what, they’re not waiving this bounce/late fee for you as you’ve already used up your freebie, or if you forget/can’t afford to pay it on time six months from now - nope, they’re not waiving your late charge then either because you just used it up now.

If my credit card is lost/stolen/compromised it is separate from & doesn’t affect my ability to pay bills. It’s really not a bright idea to link the two of them together.

When you use the credit card and pay it off on time each month, it makes your credit score go up a little.

I have nothing to add but agreement. Credit earns me cash rewards and if the account is compromised I’m not liable and it’s their money “in the air” while it’s sorted out.

Earning interest on deposits isn’t really a factor because my operational checking account has very very low APY which amounts to pennies per month.

Regarding local merchants: I don’t know any well enough to be willing to write a check! :eek: :wink:

If someone offers a lower price for debit, that’s a no-brainer. And every now and then I do have cash, for places with a $5 purchase minimum – but I encounter those minimums less and less. Even vending machines now have started to accept credit/debit cards (though usually with some kind of surcharge; at work it’s $0.10).

I wonder if the bump is any higher than you’d get from maintaining a low balance (1-2% of available credit)…

My checking account also has a pretty low interest rate, but I would transfer the money I’d otherwise keep there (for covering debit charges) to a higher-interest account. But I figure even low interest is better than no interest…pennies add up, right? :slight_smile: