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Credit vs. Debit: Which Is Better?

Debit or credit? While these two forms of payment might seem to work the same when you’re at the register, what comes after means two totally different things for you and your bank account.

Let’s do a deep dive into the debit vs. credit showdown and see who takes the crown.

Debit vs. Credit: What’s the Difference?

What is a debit card?

A debit card uses your own money (pulled directly from your bank account) to pay for something. It’s basically like cash, except you get the convenience of using a card instead of carrying around a wad of paper money when you make a purchase.

What is a credit card?

A credit card borrows money from a lender to cover a purchase, instead of using your own money. You will have to pay that money back—and on time. And if you don’t? Well, then you’ll get hit with interest, late fees and credit card debt (yeah, not fun).

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It’s also worth mentioning that there are different kinds of credit cards out there. Depending on your age, credit history and lifestyle, you might get offers for specific ones. But all credit cards have one thing in common: They’re designed to build debt, not wealth.

Debit vs. Credit

Debit

Credit

Uses your own money

Borrows money using a line of credit

Won’t charge you interest

Will charge you interest if you’re late on monthly payments

Makes it easier to stick to your budget

Makes it harder to keep track of your spending

Helps you stay out of debt

Offers perks to keep you spending more

Is accepted at most stores and online

Is accepted at most stores and online

Has fraud protection

Has fraud protection

Can be used to book travel and rent a car

Can be used to book travel and rent a car

Doesn’t affect your credit score

Does affect your credit score

When Can I Use Debit or Credit?

Like smartphones and skinny jeans, both debit and credit cards are pretty much everywhere nowadays. Whether you’re shopping for a dog sweater online or getting your weekly groceries, you’d be hard-pressed to find any business that won’t accept those two types of payments. Although, your favorite food truck or pop-up shop at the local flea market might only take cash. (Btw, paying with cash when you can is definitely your best option.)

But just because you can use a credit card, it doesn’t mean you should. Let’s dig into why using debit is the smarter choice.

Debit vs. Credit: The Benefits of Using a Debit Card

Debit cards don’t charge you interest.

In 2021, the average credit card interest rate increased to 17.13%.1 Multiply that by the 55 million American households who have a credit card balance ($787 billion total), and credit card companies stand to make $134.81 billion in interest alone.2,3,4 Man, we’re boiling just thinking about it!

In a system that’s built to keep you owing more, using a debit card is a great way to take back control. You can walk up, swipe your debit card, and be on your way with your purchase. Done. No payments six months from now. No 17% interest on your account. No 90-days-same-as-cash with five pages of fine print. No annual fees. With a debit card, you can buy what you need—and avoid the useless fees.

You spend less when you use a debit card.

It’s true. Studies show that people spend more when they pay with a credit card than they do when they pay with cash (aka your own money).5

When you swipe a credit card, it feels like you’re playing around with imaginary money, so it’s easier to spend more of it. But this isn’t a game of Monopoly—if you’re putting something on credit, odds are you don’t have the money to cover it from your own bank account. And if you don’t have the money right now to buy something, you shouldn’t buy it. Period.

Debit vs. Credit: Reasons Why People Use Credit Cards

Credit card companies have spent a ton of time and money trying to convince you that credit cards are the only way to go. In fact, eight in 10 adults in America (83%) have at least one credit card.6 The credit card companies in their shiny towers are counting on your participation to make them a profit.

But you don’t have to be a part of their scheme. Here are just some of the lies you’ve been sold about credit—and why they crumble like a house of cards.

Reason 1: I pay off my credit card every month. What’s the problem?

Truth: Do you, though? Do you really?

According to the Federal Reserve, only 48% of people with a credit card actually pay their bill in full every month.7 So the odds aren’t exactly in your favor. And if you carry a balance (no matter how small), you’ll end up paying more than if you’d paid with cash.

But let’s say you do pay off your credit card bill each month. You might think you’re staying on top of it, but what happens when things get really tight? Imagine your fully stocked refrigerator suddenly goes out. You do your normal routine—lay down your credit card to cover the $1,500 cost for a new one. But you forgot there’s already a $750 balance on the credit card from all the other purchases you meant to pay off at the end of the month. And now, thanks to your faulty fridge, there’s an extra $1,500 tacked on there.

You don’t have $2,250 lying around to wipe out your credit card balance and buy new groceries to replace the ruined food. So that balance is going to have to sit there for another two or three months. See how easy it is to get caught up in the cycle of credit card debt?

We get it—life happens. But you don’t have to put it on a credit card. That’s what an emergency fund and a good budget are for.

Reason 2: I have to use a credit card for travel.

Truth: You don’t need a credit card to travel. A lot of people think credit cards are the only way to avoid the hassle when trying to book a flight, reserve a hotel room, or rent a car. But we’re here to tell you that you can do all that with a debit card! And the best part? You can enjoy that paid-for vacation without worrying about the price tag coming back to haunt you later.

Reason 3: I use a credit card to build my credit.

Truth: This one has a tight grip on our culture. The toxic credit card industry has made you believe that your FICO score matters more than the amount of money in your bank account, that juggling debt is the only way to get ahead, and that it’s completely normal to be drowning in debt up to your eyeballs.

But normal is broke. And if you want to be broke, then go right on ahead. But building your credit isn’t the same as building wealth. The only way to take control of your money is to stop buying into the lie that credit is your best friend—because it’s not. It’s just a never-ending cycle that keeps the credit card companies raking in the dough and keeps you from making real progress with your money.

Reason 4: I get perks for using my credit card.

Truth: Yeah, the idea of getting credit card rewards sounds nice. Maybe you’ve even been tempted to get a store credit card to get that discount at Old Navy. But like we said before, interest can add up fast. And if you’re carrying any kind of balance at the end of the month, any points you might’ve earned from swiping your card are pretty much canceled out after the fees you pay.

It’s all part of the credit card game, which was never designed for you to win. In fact, the only reason credit card companies are even able to offer free perks is because someone else is coughing up the interest. That single mom struggling to pay off her medical bill—that’s who’s really paying for those points, not the credit card company. Trust us, the cash back, miles and other gimmicks aren’t worth the cost.

Reason 5: My credit card is safer than a debit card.

Truth: What most people don’t realize is that credit companies like Visa or Mastercard protect their debit card purchases too. If you run your debit card as credit when you make a purchase (which may show up as pending on your account), you have the exact same protections as a credit card.8,9

And remember, you can help lower your risk of identity theft just by keeping an eye on your bank account. If you’re checking your transactions often (which you should be if you’re budgeting), then you’ll be able to catch any unusual purchases pretty quick. And if someone does manage to steal your information and sneak in a trip to Walmart on your dime, having identity theft protection will save you a lot of stress. You get an expert assigned to your case who will help you get your money back and clean up the mess (phew!).

Look, we know using a credit card may seem like the safer option. But that’s exactly what the credit CEOs want you to believe. Even when you use a debit card, you can get back the money you lose from a fraudulent charge. But nothing compares to what credit is stealing from people every day in plain sight (they just call it interest).

The Danger of Using Credit Cards

Like we mentioned earlier, 55 million households in America have credit card debt—totaling nearly $800 billion!

The numbers don’t lie. Credit cards are not something to mess around with. They’re basically the cigarette of the financial world. Will they take out everyone who uses them? Probably not. But they’re doing some serious damage in a lot of people’s lives.

Rachel Cruze says it perfectly: “When you use a credit card, it’s like you’re living your life through a rearview mirror! You’re living in the past and paying for things you’ve already done, movies you’ve already seen, and food you’ve already eaten.” And that stinks!

Having a credit card and clinging to your reward points will never make you a millionaire. But you know what will? Getting on a budget, paying off debt, and saving up for the things you need to buy. That’s how you achieve true financial success.

Debit vs. Credit: The Winner Is Debit!

It’s pretty clear that choosing debit over credit is the smartest choice. We know, we know—breaking up with credit goes against everything you’ve been taught since the day you walked into your college cafeteria and that nice guy from Visa offered you a free T-shirt if you signed up for your first credit card.

But ditching credit is possible—and totally worth it. Paying for things with your debit card (or better yet, actual cash!) is a huge step in taking control of your money.

If you’re ready to stop playing the credit game, Financial Peace University will show you how. You’ll learn the best way to get out of debt and stay out of debt, so you can make more progress toward your money goals.

You can watch Financial Peace University, plus more helpful money courses, when you become a Ramsey+ member. Try Ramsey+ for free to start your journey toward financial peace. Because you’re the one in charge of your money—not the credit card companies.

Ramsey Solutions

About the author

Ramsey Solutions

Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners.