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Debit vs Credit: A Cage Match

Upon entering the ring, the debit card and the credit card look pretty evenly matched. They are the same size and the same shape. Their functions are also similar: electronically transferring money from one owner to another. But when pitted against each other in a head-to-head match, who will come out on top?

Round One: Versatility

Debit cards destroy credit cards when it comes to availability. Nearly anyone can get a debit card – even if you have a bad credit score or no credit history whatsoever. Conversely, credit card companies are notoriously selective of who can get a card, and (especially in today's economic climate) it's not getting any easier.

But when it comes to versatility, it's a much closer match. Debit cards are directly tied to how much money you have in your bank account. If you try to pay for something with a debit card that costs more than what is available in your checking account, you will be immediately out of money and possibly even owe some pretty nasty overdraft fees. Credit cards, on the other hand, don't require you to fork over cash at the moment of purchase – you pay off your overall balance that has accumulated once a month. That still doesn't mean you should be buying things you can't afford, but it does offer some leeway when your car's transmission goes on strike and you need a few weeks to pull the funds together.

Other areas credit socks it to debit

  • You are building up a good and solid credit history every time you use your credit card right (meaning you pay off your balance in full and on time).
  • Some businesses, like car rental agencies and hotels, will only allow you to make reservations or pay for their services using a credit card.

Debit fights back

  • Debit cards can be used for "cash back" purchases, allowing users to get cash without paying ATM fees.

Round Two: Saving Money

Round Two is probably the most important round in the debit vs credit cage match. Which piece of plastic will help you manage and save more of your money?

Credit's fighting technique to save money

Strengths: You get 30 days worth of interest. Because most credit card users pay off their balances only once per month, you can accumulate an entire month's worth of interest on your cash by stashing it in a high-yield online savings account. It may seem like only pennies at a time, but it can add up over time.

Weaknesses: Sky-high interest for anyone who leaves a balance on their credit card. If you don't pay off your credit card bills in full every month, interest will start accruing on the left-over amount. How steep the interest rate is depends on your credit score; your credit score is determined by your credit history; your credit history details how responsible you are at paying the money you owe on time. Rule of thumb: always pay the full balance on time.

Debit's counter-attack

Strengths: People who use debit more than credit tend to spend less money overall. Each purchase on a debit card immediately extracts money from the user's bank account, and that knowledge is very persuasive when it comes down to a new pair of shoes or food on the table.

Weaknesses: Brutal overdraft fees. If you choose to opt-in for overdraft protection, a debit card will not be denied even if there are no funds in your bank account to cover a purchase. Instead, banks will ding your account with nasty overdraft fees for going even a penny over – sometimes $30 or $40.

Round Three: Incentives

Credit: In the past couple of years, incredible incentives and rewards programs for credit cards have taken a hit. Even so, debit rewards cards are fairly unknown, so credit still beats debit in that arena.

Debit: What they lack in rewards, debit begins to make up for in the fraud department. Credit cards are twice as likely to be used in fraudulent situations as debit cards, whose PIN number offers another layer of security.  That said, most credit cards do offer zero-liability protection for fraudulent purchases.

And the Winner Is…

Debit cards can be a safe choice for those who are still learning to manage their money, or who are working to reduce debt. However, for responsible spenders, the benefits of credit cards far outweigh those of debit cards. And today, there are more and more bad credit credit cards designed to help people build up a strong credit history! Check out Creditnet's credit card guide to find the card that's right for you.

Photo credit: Shutterstock / Neyro

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Joshua Heckathorn's picture

Joshua Heckathorn was President of Creditnet, is a credit expert and has been featured on CNNMoney, FOX Business, Yahoo Finance, The Street, and many other national publications during the past ten years.  He received a Bachelor of Science in Management (Finance) from Brigham Young University's Marriott School of Business and earned his MBA from Seattle University.

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