Credit cards vs. debit cards: Family or foes?

Woman making a contactless payment

Whether you use a physical wallet or a digital wallet, you may not put a lot of thought into what type of card you use to make your purchases. But the choice between using your debit card or credit card can actually impact several areas of your financial life, including your credit. Understanding the pros and cons of both types of cards can help you use them wisely.

The case for credit cards

Credit cards serve as a revolving line of credit. This allows you to make purchases up to your credit limit with time to repay the balance before your account starts accruing interest. Assuming you use your credit card wisely, it can be an excellent choice for a number of reasons. 

First, credit card payments are reported to the  three major credit bureaus. If you make your payments on time and in full, you’ll grow a positive credit history that contributes to a better credit score. This makes it easier (and less expensive) to get approved for a loan in the future. With a positive repayment history under your belt, lenders are more likely to approve you for things like a car loan, a personal loan, a refinanced student loan or a mortgage.

Credit cards also give you the flexibility to make large purchases. You should always have a repayment plan in mind, but having those few extra weeks to pay off the balance can help you when you’re in a tight spot and need to make a major purchase. Another perk is that there are cards with all types of rewards programs available, such as the Capital One Quicksilver Credit Card for cash back or the Chase Sapphire Preferred Credit Card for travel rewards.

The case for debit cards

Debit cards allow you to use funds that are in your connected bank account. The major benefit is that it’s easier to manage your money, especially if you have a hard time tracking how much you’ve charged on your credit card and when you need to pay off your balance. 

Tracking your spending is key, because once the money is gone from your account, either your transaction will be declined or you’ll get hit with expensive overdraft fees. While most banks don’t offer rewards points with debit cards, it’s easy to get approved for one, as long as you don’t have a history of excessive overdrafts or writing bad checks.

The rewards of using both

When used together, credit cards and debit cards provide a useful selection of financial resources in your back pocket. Whether it’s by earning a free vacation with credit card points or managing your budget more effectively with careful debit card use, either can be used to craft a smart financial strategy for your future. 

As you research the best credit cards for you, make sure your credit profile matches the quality of the card. If you’re just getting started, consider building your credit history with options like the Discover it Credit CardⓇ or the Chase Freedom Credit Card. 

Final thought

How you ultimately decide to use your debit and credit cards depends on where you are in your financial journey. Each one comes with benefits and drawbacks, so start by determining your financial goals and create a strategic plan to maximize the strengths.