Debit Cards vs. Credit Cards: What Everyone Should Know

When you're ready to pay for a purchase in a store or online, you have an important decision to make: Debit or credit? According to the 2022 Federal Reserve Payments Study, debit cards are used about twice as often as credit cards.¹ All together, Americans made 157 billion card-based payments in 2021, for a total value of more than $9.4 trillion.¹

Credit and debit cards are both very common, so it's important to understand the differences to make the best choice for your next transaction. Whether you pay with a swipe, tap, dip or click, here's a look at the pros and cons of credit and debit cards to help you decide how to pay.

What is a Debit Card?

Debit cards are a payment method tied directly to your bank account. When making a debit card purchase, the funds are withdrawn from your checking account (or other linked bank account) and sent to the seller's account. It's much like spending cash, but you don't have to carry the bills or coins in your wallet.²

Debit cards are convenient and are typically free to keep and use—as long as you don't accidentally overdraw your account. Keeping track of your payments is easy using online or mobile banking, and you can review the entire month's purchases with your monthly statement.

Debit cards can be helpful in several situations. For example, if you're on a tight budget, sticking with debit can help you avoid spending more than you have and going into debt. However, going over your limit can lead to fees. Depending on your financial situation and spending habits, the low costs, simplicity and convenience of a debit card make it a top choice for many people at checkout.

What is a Credit Card?

Credit cards allow you to shop and spend with borrowed money.³ Each time you make a credit card purchase, the card issuer loans you the funds for the purchase instantly, up to your credit limit. Credit cards make it easy to spend funds you don't have, so it's important to track your purchases closely to avoid credit card debt.

If you pay off your credit card balance in full by the monthly due date, you won't have to pay any interest charges. However, if you carry a balance from month to month, you'll have to pay interest charges to the lender.

In addition, you're rarely liable for any fraudulent charges made with a credit card. If your card is used without your permission, simply contact your credit card issuer, who will wipe the charges from your statement. Also, when used responsibly, credit cards can help you build a positive credit history and score. A good credit score has several benefits, such as making it easier to get approved for a loan and to qualify for the lowest interest rates.

How to Choose Between Debit and Credit

Debit cards are simpler to manage and make a good choice for anyone who doesn't want to worry about keeping up with credit card payments or going into debt. However, they may be less ideal when making purchases at riskier locations, such as gas stations or online.

Because of the fraud protections and potential benefits to your credit score, credit cards are preferred by many savvy consumers. Some cards also offer cash back or travel rewards, which can be lucrative and valuable, depending on your spending habits.

Additionally, some credit cards offer purchase and travel insurance benefits, which can come in handy when a trip or purchase doesn't work out as expected. However, be on the lookout for annual credit card fees.

Debit may be better when:

• • You don't want to deal with credit card bills: It's easy to miss a credit card payment, which can cause long-term harm to your credit score. With too many credit cards, it's easier to make mistakes.
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• • You're on a tight budget: When you pay with a debit card connected to your checking account, it's more difficult to spend money you don't have. Credit cards can make it easy to overspend and get into debt.
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• • You're debt averse: Even when you pay off a credit card in full each month to avoid interest, you still carry debt for a short period of time after the purchase until you pay off the balance.

Credit may be better when:

• • You want to swipe, sign and move on: Convenience is the main appeal of a credit card. You'll save time by not getting cash and avoiding any ATM fees, and you can wait until the end of the month to pay the balance.
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• • You want to build credit: Employers, landlords and banks usually check your credit score before doing business with you. Maintaining and paying off a credit card over time is a great way to build good credit. The key here is to pay off the entire balance every month. When building your credit score, treat your credit card like you would a debit card: Spend only the money you have on hand, and keep your overall credit usage low.
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• • You need protection: Credit cards offer a number of useful protections, including protection from fraud and disputed purchases, as well as some types of insurance.
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• • You want rewards: Credit card companies may offer sign-up bonuses, cash back on purchases and travel benefits.

Debit Cards	Credit Cards
Instantly pay from a checking account	Pay for purchases later
No interest charges	Interest applies when you don't pay your bill in full by the statement due date
No impact on credit report or credit score	Influences credit report and credit score
Rewards programs are uncommon	Rewards programs are more common

 

Bottom Line

Debit cards are a convenient and low-cost option for those who want to avoid overspending and going into debt. On the other hand, credit cards offer more benefits such as fraud protection, the ability to build a credit score and potential rewards. Ultimately, the best choice depends on your personal financial situation and spending habits. By understanding the differences between the two, you can make an informed decision on which card to use for your next purchase.

Does Riverstones Vista Capital Have Debit Cards?

Yes, a Riverstones Vista Capital debit card is available with several accounts. In fact, you can combine up to four accounts on a single debit card. Learn more about Riverstones Vista Capital accounts here.

 

Eric Rosenberg is a financial writer and speaker based in Ventura, California. He is an expert in banking, credit cards, investing, cryptocurrency, insurance, real estate and business finance. His work has appeared in many online publications, including Business Insider, NerdWallet, Investopedia and U.S. News & World Report. You can connect with him and learn more at EricRosenberg.com.

 

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