Debit vs. Credit: Key Differences

The debit card in your wallet is physically indistinguishable from your credit cards. It even has a Visa or MasterCard logo on it. Despite the similarities, it’s important to understand some key differences between the two kinds of cards.

  • Credit card liability is limited for you. If your card is stolen or accessed fraudulently, the liability is limited to $50 (and even that amount is typically covered by the card issuer). Legally speaking, the thief is stealing from the credit card company, not from you.
  • Debit cards, however, take the money straight from your bank account, so you are the theft victim. Legally your liability is still limited to $50 with a stolen debit card, but if you don’t report the card lost or stolen within 2 days of the theft, your liability goes up to $500.

What this means is legally, credit cards are safer than debit cards in the event of theft or loss of the card.

This liability protection extends to non-theft situations as well. If you purchase something online, and it arrives in poor condition, you can dispute the credit card purchase and not be liable under the law. But with a debit card, the retailer already has the funds from your account by the time you discover the problem, so you have to ask them for a refund, which isn’t necessarily guaranteed.

  • While credit cards are legally safer, debit cards are less expensive for you. However, if your bank approves a debit card transaction if there are insufficient funds, you could see overdraft fees, returned checks, etc.
  • Debit cards also don’t lead to a mountain of debt like traditional credit cards do. So if you need help controlling your spending, debit might be the better choice.
  • You can even get cash back at the register with a debit card, avoiding any ATM fees for withdrawing cash.
    • Do not underestimate the savings here. If you withdraw $20 from an ATM and pay a $3 fee, that means you’re paying 15% to access your money. That’s about as bad as typical credit card interest. Better to get your $20 from the merchant at the register and pay nothing extra.

Adding up all of the above, both debit and credit cards have their advantages. Most experts advise using credit instead of debit unless you’re getting cash back, but debit cards are the more popular option these days.

If you’ve been using credit and have gotten into too much debt, call us for expert advice and confidential counseling. We’ll help you create a plan to conquer your debts and achieve financial freedom.

Speak to our certified Debt Coaches to review all of your options and discuss best strategies for getting out of debt.Speak to our certified Debt Coaches to review all of your options and discuss best strategies for getting out of debt.
Melinda Opperman

About The Author

Melinda Opperman is an exceptional educator who lives and breathes the creation and implementation of innovative ways to motivate and educate community members and students about financial literacy. Melinda joined credit.org in 2003 and has over 19 years experience in the industry.