There are huge differences between swiping a debit card and swiping a credit card.
And these differences go far beyond whether or not youre racking up credit card debt.
Heres what to consider before you decide which key in of plastic to pull out of your wallet.
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What Is a Debit Card?
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But Regulation D is no longer in effect.
Just because the federal government has removed the regulation doesnt mean every single bank has followed suit.
Types of Debit Cards
There are four types of commonly used debit cards.
Standard Debit Card
This is the workhorse debit card that you likely use multiple times a day.
Honestly, its practically a way of life.
The standard debit card is tied to your checking account or a money market account.
ATM-Only Card
Less common and more restrictive than a standard debit card is the ATM-only card.
Some issuers let you tie the card to your savings account.
But prepaid cards tend to come with excessive fees that can eat away at your balance.
EBT Debit Cards
Technically, EBT cards are debit cards, too.
You might receive an EBT debit card so you could access yourSNAP/food stampor cash benefits from the state.
To get an EBT debit card, youll need to apply and qualify for specific social welfare programming.
What Is a Credit Card?
When you swipe a credit card, youre borrowing money from the bank.
If you cant pay the full balance, its advisable toat leastpay the minimum balance due.
If you dont and youre at least 30 days late it could show up as a negative mark.
Negative marks can lower your credit score in an especially big way when theyre tied to late payments.
Unsecured Credit Cards
Most credit cards are unsecured.
That means you dont have to put down a deposit or any collateral to kick off the credit card.
Unsecured cards can be issued by a bank or other financial institution directly.
Youll also frequently see unsecured credit cards issued asstore credit cards, branded by a particular retailer.
Secured Credit Cards
Dont meet the banks minimum credit requirements?
Some financial institutions will help you rebuild your credit by issuing a secured credit card.
To open this credit card, you will need to put down a deposit.
Lets say you put down a deposit of $500.
The bank will issue you a line of credit for $500.
They know youre good for it because theyve already got your money in their pocket.
If you take them up on the offer, your deposit will be returned to you.
Pros & Cons of Debit vs Credit Cards
There is a time and season for everything.
That includes credit and debit cards.
Which one you choose to use will depend entirely on your personal circumstances.
Lets look at some of the pros and cons of each.
Credit Cards
Credit cards are more secure than debit cards.
Thats why some experts recommend using them over debit cards for online purchases.
But it isnt hard to find a credit card company who will issue you a $0 liability benefit.
Credit cards can also help you establish or rebuild your credit history when used responsibly.
These freebies arent available with debit cards.
Then, there are the points you earn on each and every purchase.
Cash back credit cards dont come with signup bonuses as regularly, but the rewards are more flexible.
Or, in many cases, you could even transfer the cash directly to your bank account.
A free plane ticket isnt worth paying hundreds or thousands of dollars in interest.
Plus, there are other expenses to worry about like annual fees.
And make no mistake: Interest rates on credit cards tend to be extremely high.
Its rare to find a card that offers an APR in the single digits.
Most cards have an APR range with a high end between 20% and 30%.
If you dare to take out a cash advance against your card, the rate can climb even higher.
When they do, it is likely to be with a higher interest rate.
Aside from late payments, another key factor in your credit score is credit utilization.
Lets say you have three credit cards.
The total amount you borrowed was $900, and your total credit limit is $3,500.
That makes your credit utilization about 26%.
Generally speaking, you want to keep your credit utilization below 30% to preserve your credit score.
Thats because youre not incurring debt when you swipe your debit card.
Also because youre not borrowing money, you wont have to worry about racking up expensive interest charges.
Generally speaking, you wont be able to spend more money than you have.
While debit cards wont hurt your credit report, they also wont help it.
Responsibly managing your checking account doesnt matter in the eyes of the credit bureaus.
Debit cards also make you more vulnerable in instances of card theft or fraudulent purchases.
The money behind your debit card is real, and it is yours.
Debit cards rarely come with the fancy perks youll find with credit cards, either.
Thats not to say theres never any bonuses for the bank account associated with your debit card, though.
Checking account bonuses tend to be found on accounts with higher balance requirements and monthly maintenance fees.
The quantity of the deposit requirements tends to be larger.
But savings account bonuses also tend to be higher.
Its not uncommon to see offers for $300-$500 if you meet the bonus offers requirements.
Should I Use a Credit Card or a Debit Card?
The decision to use a debit or credit card is contextual and should be considered with nuance.
Its also safer to use a credit card if youre worried about fraud.
But remember that no one is perfect at anything.
Youre only good with credit cards until youre not.
She is a regular contributor to The Penny Hoarder.
(Can you sense my millennial sarcasm there?)
You know which ones were talking about: rent, utilities, cell phone bill, insurance, groceries…
