Credit Card vs Debit Card: The Key Differences All Young Adults Should Know

The American people are swimming in credit card debt. The average millennial carries over $4,000 in credit card debt. For Generation X, this figure increases to more than $7,000.

The key to financial independence is learning how to balance each card’s usage. The answer for many consumers is to use their debit cards more.

This way, the lines are not blurred between cash flow and credit. For others, credit cards are valuable tools to earn rewards and build credit.

Read on for a full explainer of credit cards vs debit cards. Explore topics such as when to use a credit card or debit card.

When to Use a Debit Card?

A debit card should be used often. Debit cards are tied directly to your savings or checking accounts. The money tendered for products or services is withdrawn from your existing account balance.

Most Americans receive direct deposit of their paycheck into their checking account. This means their earnings are quickly ready to use via debit card.

If you have sufficient funds, using a debit card is recommended. By using a debit card, you are not blurring the lines between cash assets and debt. It allows you to prevent credit card debt from accruing in the first place.

When to Use a Credit Card?

While using a debit card is practical, it is not always realistic. Sometimes, you need a financial bridge to reach payday. In other cases, an unexpected expense arises, and you need more time to come up with the cash.

This is where credit cards serve a useful purpose. They allow you to continue living life when temporary financial conditions may disagree.

Before credit cards, you may have to wait until payday to buy groceries or other essentials. Now, credit cards give you the flexibility to pay at a later date.

Some people use credit cards strategically. There are so many great offers on credit cards these days. You can earn cash back on purchases and take advantage of generous introductory offers.

To avoid interest, these savvy consumers pay off the entire balance at the end of the month. This allows them to reap the best of both worlds and avoid the pitfalls of credit cards.

What Are the Key Differences?

There are many differences between credit and debit cards. As we discussed earlier, the primary one is the source of money. For a debit card, you are tapping into personal financial resources.

On a credit card, however, you are using the lender’s money with a promise to pay them back. Continue reading to learn about the key differences between credit and debit cards:


One of the major differences between credit and debit is the application of interest. On a credit card, an Annual Percentage Rate (APR) is applied to your account balance. If you carry a balance over to the next statement period, interest will accrue on your account.

Interest is the financial motivation for lenders to offer credit cards in the first place. They earn more money when you run up a higher credit card balance.

On a debit card, however, you can earn interest instead of paying it out. Because it is your money sitting at the bank, interest works in the positive direction. While it may not be a lot, it is still better than going deeper into credit card debt.

Reward Programs

Debit cards do not typically allow users to earn cash back or other rewards. There are introductory bonuses for opening up a new checking or savings account. However, it is a one-time incentive to encourage you to sign up.

Credit cards, on the other hand, offer generous reward programs. For example, you may earn 5% cashback every time you use the card at a restaurant.

There are other reward categories like gas, grocery stores, and travel. Even uncategorized expenses typically earn 1% cashback.

Like debit cards, credit card companies also offer introductory bonuses. They may offer $100 cash back if you spend $1000 within the first 90 days of account opening.

Balance Transfers

You can transfer a balance from one credit card to another. Typically, consumers do this to reduce interest expenses. They move their balance to a credit card with a lower APR.

While some cards allow 0% balance transfers, this is a pretty rare feature. Most cards charge you 3% to 5% to transfer a balance.

This is a benefit that does not work on debit cards. Remember, your debit card balance is money that you have sitting in the bank. It is an asset and not a liability. This means there is no real benefit to transferring your balance to another account.

Building Credit

With a debit card, you cannot build good credit. Banks do not send over your debit history to the credit reporting bureaus. This means that your credit score is not linked to your savings or checking accounts.

If you are looking to build a good credit score, applying for a new credit card is key. You are going to have to make on-time payments and keep a low balance between raising your credit score. Other factors like the age of credit also play a role in your credit score calculation.


There are different fees applied to debit and credit cards. On a debit card, you may see an overdraft fee. This is when you charge something that exceeds your account balance.

On the credit card side, there are late payment fees. If you are late to make a minimum payment each month, the credit card companies assess a late fee. There are other potential penalties on a credit card, such as foreign transactions or balance transfer fees.

Settling the Credit Card vs Debit Card Debate

The right choice of a card depends on your financial goals. If you are looking to eliminate debt, using a debit card is the preferred choice.

However, credit cards are great for building good credit and earning rewards. They also help in times of need when you do not have the cash available.

If you found an answer to the credit card vs debit card debate, contact us today to start repairing your credit today.