Credit vs. Debit Cards: Weighing the Options

If you're debating whether debit cards or credit cards are best for you, this article can help you decide.

Debit cards have changed in the last few years, and some of the changes -- such as overdraft protection and usage fees -- are making them a bad option for consumers. But that doesn't mean credit cards are necessarily better: Americans are currently accumulating crippling amounts of credit card debt.

To complicate things even further, credit and debit cards are increasingly difficult to tell apart. Some debit cards -- known as "check cards" -- don't even require a PIN (personal identification number) at the time of purchase; you can simply sign for your purchase as you would with a credit card. (Check cards, many of which are emblazoned with that name, usually carry a Visa(V Quote) or MasterCard(MA Quote) logo.)

How should you choose between debit and credit? Consider the following factors:

Overdraft Fees

Conventional wisdom used to dictate that if you had problems reining in your spending and tended to accumulate debt, you should go with a debit card, since you could only spend money that you actually had in your account.

The problem is, many institutions now offer overdraft protection for debit cards. This "courtesy" allows a consumer to spend more money than he or she has in a given account, essentially converting the debit card into a credit card with a fee -- typically $30 or more -- charged per overdrawn transaction.

Credit cards, on the other hand, are a problem for consumers who pay high interest rates on large balances.