Buzz
A 2015 study by Chime found that nearly 70% of millennials favor debit cards over credit cards. Additionally, data from Transunion shows that this group tends to hold fewer credit and private label cards compared to older generations.
It’s easy to see why millennials might be cautious—credit card debt is a significant issue in the U.S., and escaping it can be a daunting challenge. The credit industry is often opaque and predatory. However, when used wisely, a credit card can be a valuable financial tool, helping to improve your financial health over time.
Here are a few key points to consider when comparing debit and credit cards.
Debit Cards
Advantages:
Funds are automatically deducted, providing clarity in everyday expenses.
You can set up recurring transfers to your savings account.
Access to cash through ATMs or various vendors is available.
Purchases do not impact your credit score.
Disadvantages:
Less secure than credit cards, particularly for online transactions. Credit card issuers usually provide faster refunds for fraudulent charges compared to debit cards.
If your card is stolen and it takes longer than 2 business days but less than 60 calendar days from receiving your statement to report the theft, you might be held responsible for up to $500 in fraudulent charges.
You may incur overdraft fees (the average fee is $33.38, according to Bankrate).
Spending does not affect your credit score.
Credit Cards
Advantages:
Earn points, rewards, and cashback on purchases you’re already making. Different card types—such as travel or cashback cards—allow you to focus on what matters most to you.
More secure than debit cards, particularly for online transactions. Under the Fair Credit Billing Act (FCBA), you’re typically liable for only up to $50 in fraudulent charges after reporting a stolen card, and some companies may waive even that amount.
Refunds are more easily processed in case your card is stolen.
Can help build your credit score, which is essential when borrowing. Your payment history (which accounts for 35% of your FICO score) and the length of your credit history (i.e., how long you’ve had the card) both play a role. This can ultimately save you thousands of dollars on lower interest rates when purchasing a home or car.
Disadvantages:
Easy to accumulate debt if you overspend: The average household with credit card debt carries a balance of $16,883, according to NerdWallet.
It can be overwhelming to compare the many types of credit cards and how they can impact you financially, either positively or negatively.
If you don’t manage your spending wisely, it can negatively affect your credit score.
Many people are unfamiliar with how to optimize their credit score, pay off debt effectively, or fully understand how interest rates work.
