Debit Card vs. Credit Card: Which Is Right for You?

Credit and debit and checking and savings, oh my! If you’re embarking on your first solo financial journey or looking to save money by opening a new account, there are a lot of factors to consider. Certain purchases are better suited for a credit card, but it can be easier to budget and track your spending with a debit card. Debit cards tend to be interest-free with minimal transaction fees (and you can even find a free debit card) while credit cards have an interest rate that fluctuates. Read on to find out the pros and cons of having a debit and prosper credit card depending on your priorities and spending habits.

Debit Card: Pros

• Minimal transaction fee
• Interest-free
• Same as paying cash
• Prevent debt and help accumulate savings
• Savings accounts

Debit cards draw from the money that is already in your bank account, meaning you run less risk of spending money that you don’t have. You can only spend what you have earned or deposited into your account. Some banks and debit card companies charge interchange fees, but these are usually paid by the merchant or store you purchase from.

Because you’re not borrowing any money when you swipe your debit card, your bank won’t charge you any interest. That’s why a free debit card is one of the coolest and oldest forms of technology—it’s essentially the same as carrying cash without the bulk of all those bills. 

Debit cards are also a great way to accumulate savings since most can be linked to a savings account. Many savings accounts also offer options for consumers to earn interest. While debit cards can’t charge you interest, you can charge interest from your bank. If you keep a minimum daily balance in your savings account, you’ll get free money added to your account each month. A free debit card is a convenient tool to use if you’re looking to start an emergency fund by setting a certain amount of money aside each month.

Debit Card: Cons

• Overdraft Fees
• Won’t build credit
• Long wait time to reverse charges

While it’s great that you can’t spend nonexistent money with a debit card, your bank may charge you for trying to do just that. Your bank might charge an overdraft fee if your account reaches zero dollars. If your bank has an online app, you can avoid overdraft fees by regularly checking your account before and after each transaction. 

Unfortunately, a debit card won’t increase your credit score. Having a good credit score can help you save money on insurance, housing, car payments, and interest rates on loans.

Additionally, if you tend to misplace your wallet or you’re worried about getting your debit card stolen, it may take longer for your bank to reverse fraudulent charges. Most transaction reversals take one to three days to process, and you must catch the fraudulent charge within sixty days in order to dispute it.

Credit Card: Pros

• Higher dollar purchases
• Spread payments out
• Builds credit
• Safer to use online

A prosper credit card, unlike free debit cards, allows you to borrow money from your bank to make bigger purchases. If you have a reliable source of income and can make credit card payments, then this could be an option for you. Using a credit card responsibly helps you build your credit score and may lower your housing and insurance rates.

Depending on your credit score, your card will have a monthly spending limit that you must pay back at the end of the month. As long as you’re able to match the amount spent, it may be easier to use a credit card for a large purchase if you’re still waiting on your next paycheck. Many Americans receive their paychecks bi-monthly or bi-weekly, and credit cards can make it easier to pay back a larger purchase as your paychecks come in.

Some transactions, like car rentals and hotel reservations, also require you to use a credit card. Hotels may place a hold on your credit card before allowing you to make a reservation in order to ensure that you can pay for your stay. If you travel a lot, you’ll probably benefit from carrying a credit card with you.

Furthermore, it’s easier for your bank to reverse a transaction on your prosper credit card if you receive fraudulent charges, and it may also be safer for you to make a large transaction online.

Credit Card: Cons

• Interest rate
• Credit card debt
• Risk of late payments

Because prosper credit card companies charge an interest rate, it can be easier for young people and impulse spenders to accumulate credit card debt. When you reach the end of each month, you’ll be charged an interest rate if you don’t pay back the amount spent in full. Your interest rate may also increase if you regularly make late payments. 

If you’re still unsure whether a free debit card or a credit card is right for you, consider getting both. You can use your credit card for a few key purchases to help you build credit and use your debit card for daily spending or impulsive buys. In any case, bank and prosper credit card companies are very knowledgeable about their specific benefits and interest rates. Many also have special discounts and no minimum balance for high school and college students, so don’t be afraid to ask for advice if you’re just starting out!