Improve Your Credit Score

Understanding When to Use Credit Vs. Debit for Optimal Benefits

Updated on August 15, 2023 Updated on August 15, 2023
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Every time we make a purchase, we have to decide between using a credit card, a debit card, or cash. They all have their pros and cons. Will there be a clear winner? Credit vs. debit vs. cash: the ultimate showdown.

Those shiny credit card offers with their promises of free flights, and cash back can be seductive. We like our debit cards because they help keep spending under control. And some die-hards still like cash because it can make some purchases cheaper. What and when should you choose when it comes to credit vs. debit vs. cash?

Among our three choices, which do Americans prefer?

In a survey, payment processor TSYS asked over 1,000 consumers which payment form they prefer. Forty percent chose credit cards, while 35 percent selected debit cards and only 11 percent specified a preference for using cash.1 Consumers’ preference for credit cards increased by 5 percent over the same survey’s results from 2015, while the results for debit cards fell by 6 percent.

The survey also found that debit cards were the preferred method of payment for smaller, everyday transactions at supermarkets, gas stations, and convenience stores, while credit was the choice for more expensive purchases, including those at department stores and restaurants, and for travel reservations.

Cash is definitely not king anymore.

Credit Cards Pros

Americans love their credit cards. The average American has 2.69 in their wallet. These are good arguments for whipping out the credit card.

Track Spending

When you charge something on a credit card, you can almost instantly see the transaction in your account. If you use a budgeting program like Mint, the transactions are automatically downloaded. This makes tracking your spending and budgeting easy.

It’s a Loan

Charging a purchase to a credit card is like having an interest-free loan. Most cards offer between 55-62 days before interest charges start accruing.

If you’ve had to make a big purchase on a credit card because you didn’t have cash, you have that amount of time to pay it off before you have to start paying interest. This allows you to spread out the cost of a big purchase over time.

They Help You Score

We’ve talked about the importance of having a good credit score and using credit cards can help build your score.

You’re Protected

You have some consumer protections when you purchase a credit card. Protections vary by card but some things typically covered include replacing a stolen or damaged item, refunds for a product or service you are unhappy with, and extended warranties.

If you travel, credit cards can offer things like travel accident insurance, luggage protection, and trip cancellation insurance.

If your card is hacked or stolen, it’s the credit company’s loss and not yours. As long as you notify the company within two business days of being hacked or having your card stolen, the maximum you are responsible for is $50.

If you wait more than two days but less than 60 after your statement is sent, the maximum is $500. I’ve had my card hacked though, and the company let me off the hook for the entire amount.

It’s Not Ideal

A credit card is not meant to be used as an emergency fund; you need cash set aside somewhere easily accessible like a checking or savings account. But if you don’t have an emergency fund, you can use a credit card.

If you do this, you need to hustle to get that card paid off as fast as you can. Check out a balance transfer card if you can’t pay it off before you start racking up some significant interest charges. That will give you more time to pay the debt off without interest.


There is a lot of competition between credit cards, so cards offer some pretty sexy rewards to lure customers. With the right credit card, you can score free flights, and hotel rooms, and make life a little cheaper with cash back on your purchases.

A good sign-up bonus can give you enough points for a free flight or some free hotel stays and even cash once you meet the spending requirement.

Your debt is an emergency.

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Credit Card Cons

It’s not all free flights and rainbows when it comes to using a credit card. There are plenty of pitfalls too.

The big con of using credit cards is that if you don’t use them responsibly, you can plunge yourself into debt that can take years or even bankruptcy to clear.

If you have had trouble with credit cards in the past and haven’t learned your lesson, all of the pros combined do not outweigh this con.

Don't buy things you can't afford with money you don't have to impress people you don't like.

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If you are currently struggling, use the stacking or snowball method to help pay off the debt faster and consider getting a loan from Upgrade. You will still owe money, but Upgrade will give you a better interest rate than you have on those cards.

A False Sense of Security

Even if you do use your cards well, you shouldn’t become too dependent on them. Theoretically, you can access tens of thousands of dollars in your wallet. This can make you complacent about saving for an emergency fund and a sinking fund.

Again, credit cards are no substitute. You need to focus on building those two funds. Okay, you don’t have an emergency fund, and you need a $3,000 car repair. You can put it on a credit card, and while it may take a few months to pay it off, it won’t hurt too bad.

But what if you lost your job and it took six months to find a new one? Putting six months of living expenses on a credit card is going to hurt, and it’s going to hurt for a long time.

Annual Fees

Some rewards cards charge an annual fee. If you take full advantage of the card’s benefits you can come out ahead but plenty of times you sign up for those rewards with dreams of first-class travel in your head but don’t actually travel enough to make the annual fee worth it.

There are plenty of cards though that have rewards and don’t charge an annual fee.

Debit Cards Pros

Imagine having to go to the bank, actually into the bank and ask a teller to give your money from your account! Crazy! But that’s what people had to do before debit cards. Ride their dinosaurs to the bank to get cash!

Debit cards have their champions and for good reason.

Track Spending

Like credit cards, spending on a debit card is easy to track. You can see your transactions almost in real time, so you always know how much money you have.

No Effect

Part of your credit score is based on utilization, how much of your credit you are using. If you charge up your credit cards, it hurts your utilization and thus your credit score. Using a debit card does not affect your credit score.

If you have $10,000 in your account and spend $8,000, it won’t matter to your score.

No Dinosaurs

The biggest pro of using a debit card is their convenience. A debit card gives you access to cash.

There are 400,000 ATMs in the US, so you are never far from one.

It might not be affiliated with the bank that issued your debit card in which case you will have to pay a fee, but the fees are small enough that if you are charged one occasionally, it’s not the end of the world.

If you are not near an ATM or really don’t want to pay that fee to use an out of network one, you can use a debit card to get cash back at thousands of places like grocery and drug stores.

No Debt

When you spend on a debit card, you won’t go into debt. You can’t spend money you don’t have.

Anyone Can Get One

Not everyone can get approved for a credit card, but as long as you haven’t been blacklisted from having a checking account, you can get a debit card. You don’t need a good credit score or any credit score to get one.

Debit Card Cons

These might give you pause the next time you reach for the debit card.

Limited Protections

Remember when we said that if your credit card is hacked or stolen it’s the credit card company’s problem? Well, if your debit card is hacked or stolen, it’s your problem. At least for a time.

Your responsibility is actually the same as it is when this happens to a credit card, a maximum of $50 or $500, depending on when you report the incident. However, the money the thief stole from your account leaves your account instantly.

It can take a few days for the bank to sort this out and reimburse you. During which time, the money stolen is money no longer available to you. If you have expenses that must be paid from that account, you might be in real trouble.

Debit cards also don’t offer the more comprehensive consumer and travel protections that some credit cards offer.

No Rewards For You

This isn’t the worst con of using a debit card, but it’s the saddest. I love rewards cards and have used them for free flights several times. I have also gotten $500 worth of statement credits with a new cash back card.

None of those terrific rewards are available when you use a debit card. Unless…

Tally is a debit card that gives you rewards. Check out our review for more details.

No Effect

While using a debit card doesn’t hurt your credit score, it doesn’t help it either. A credit score is a way to show how likely you are to repay borrowed money whether that money is in the form of a credit card or a mortgage.

You aren’t borrowing money when you use a debit card, that is your money. So it does not effect your credit score.


If you don’t have enough money in your checking account to cover a debit card transaction, the card will decline. This is embarrassing, but if what you were trying to purchase is a necessity, embarrassment might be the least of your problems.

You can prevent this by setting up overdraft protection on your account. This might sound like a good thing but for each transaction you overdraft, you will be charged a fee, and it might be as high as $35.

This is how a $3.50 can of Bustello cost me almost $40 years ago when I first moved to New York City and was broke. You make a few transactions you can’t cover before you realize you are overdrawn, and you can be facing hundreds of dollars in bank fees which is going to be a problem for a person who can’t afford a can of Bustello.

Cash Pros

We had the paper before we had plastic and while the paper is increasingly on it’s way out, it’s still clinging on. If you just refuse to give up spending cash, we can sort of see it.

No Debt

Like spending with a debit card, spending cash is an excellent way to ensure that you don’t fall into the trap of debt. This is why the envelope method is a great budgeting system for people who have had problems staying out of debt. Once the cash is gone, you are done spending.

Gimme a Discount

This isn’t going to work at a chain store, but if you are shopping at an independent retailer, some of them are willing to give you a discount when you pay cash. Maybe they want to avoid the transaction fees they have to pay when a customer uses a debit or credit card.

Maybe they don’t report cash transactions as a way to avoid paying taxes. Whatever, none of your business!

Cash Cons

There are a lot of them.

No Tracking

If you’ve taken out $100 on a Friday and wondered how by Sunday you only have $14 left, you know what I mean. Unless you are meticulous about keeping receipts and recording them, it’s hard to track spending when you are spending cash.

No Credit Score

Only spending cash means you won’t have much of a credit score or any credit score at all.

No Protections

If your cash is lost or stolen, it’s gone, and you can’t replace it. If that generous store owner who gave you a discount when you bought that diamond ring for cash turns out to be a grifter who sold you cubic zirconia and split town, you have little recourse.

Spending cash leaves you vulnerable.

No Rewards

Apart from the occasional discount you get by paying in cash, there aren’t any rewards when you use cash.

You’re Gonna Need a Lot of It

If you want to buy a house or a new car with cash, you better start saving now. Not many people can afford to buy big-ticket items using only cash.

Get Your Dinosaur

How do you pay your utility bills in cash? Either you have to take cash to their payment center or buy money orders. How are you going to buy an airplane ticket, book a hotel, or rent a car?

I guess you would have to have someone who does have a credit card in your life who is willing to do these things for you and then you would give them the cash to cover it.

If you only use cash, you can’t shop online, and you will never know all the awesome stuff you can buy on Amazon, Etsy, eBay, and a million other sites.

Damn, you can’t even order Seamless! Gotta pick up the phone and talk to the restaurant like a Neanderthal! Using cash is inconvenient.

Your Money Isn’t Working

When you invest your money, it makes more money with no effort from you. When you invest, you are growing your wealth for the future. If you want to retire one day, you have to invest. The easiest way to invest is to let a company like Betterment or Vanguard do it for you. You transfer money to them from your checking or savings account, and they do the rest.

This option isn’t available to you if you only deal in cash.

You Look Like a Loon

It could be lots of loon varieties, the anti-government loon, the Illuminati loon, the end times loon, a paranoid loon. Whatever kind doesn’t really matter to normal people, you look like a loon.

Or a Drug Dealer

For real, it’s mostly drug dealers who only deal in cash and people are going to think you’re a dope slinger.

Debit vs. Credit: What's your preference?

And the Winner Is…

I think we can rule out cash. The only situation where we would recommend spending cash is if you have difficulty sticking to a budget and want to use the envelope system.

Even then you will only use it for certain budget categories like food and entertainment. It’s not practical to use cash for things like utilities and housing but those aren’t the categories you overspend in.

So that leaves us with credit vs. debit.

Provided that you don’t use credit cards to buy things you can’t afford, credit cards are the clear winner. Using credit cards gives you benefits like short-term interest-free loans, help to build your credit score, and consumer protections that debit cards just can’t match.

Just make sure you use a credit card like an adult.

Credit cards are a tool, and when used responsibly, they can improve your finances which is something we all want.

Show Notes

Mint: You should be using this FREE online software to track your expenses and setting up your budget.

American Express Credit CardThis is the credit card that Andrew uses to get cash back bonuses.

Discover Credit Card: This is the credit card that Matt uses to get cash back.

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Candice Elliott - Senior Editor Candice Elliott is a substantial contributor to Listen Money Matters. She has been a personal finance writer since 2013 and has written extensively on student loan debt, investing, and credit. She has successfully navigated these areas in her own life and knows how to help others do the same. Candice has answered thousands of questions from the LMM community and spent countless hours doing research for hundreds of personal finance articles. She happily calls New Orleans, Louisiana home-the most fun city in the world.

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