Americans Favor Debit Over Credit for Their Go-To Card

Credit cards offer rewards, purchase protections and other benefits. They can shield users from the financial effects of fraud, and, when used wisely, can help consumers build good credit. But more Americans say they would pull out their debit card than a credit card when paying for everyday purchases, according to a new NerdWallet survey.

In an online survey of more than 2,000 U.S. adults, commissioned by NerdWallet and conducted by Harris Poll in August 2017, we asked about the payment methods people primarily use for everyday purchases, how they feel about different payment methods and whether they’ve ever had credit card debt, among other things. Here’s what we learned:

• More than 2 in 5 Americans (44%) say they primarily use debit cards for everyday purchases, like groceries and gas; 34% say they primarily use credit cards.

• Almost three-quarters of Americans who primarily use debit cards for everyday purchases (71%) say they have been in credit card debt.

• About 1 in 4 Americans (24%) believe, incorrectly, that purchase activity on a debit card affects a person’s credit score.

We also talked to NerdWallet’s resident credit card and banking expert, Kimberly Palmer, about when it makes sense to use debit and when credit is the better option.

Debit cards for everyday purchases

NerdWallet asked Americans what they use as their primary payment method on everyday purchases, such as groceries, gas and entertainment. Forty-four percent primarily use debit cards, 10 percentage points higher than those using credit cards.

More younger Americans seem to prefer debit over credit compared with older Americans. Americans ages 65 and older are more likely than other age groups to say they primarily use credit cards for everyday purchases (46% vs. 31% of those ages 18-64). By contrast, those ages 18 to 64 are much more likely to primarily use debit cards (47% vs. 30% of those ages 65+). We’ll get into the differences between debit and credit users in a bit, but first let’s look at emotions associated with spending.

Among Americans who have used credit cards, the most common responses to the question of how they feel when using them are secure (47%), responsible (40%) and impulsive (29%). Those who have used debit cards most commonly reported feeling responsible (56%), secure (49%) and limited (31%).

Roughly one-quarter of Americans who have used credit cards feel anxious (24%) and/or overwhelmed (24%) when using them. And 29% of Americans who have used credit cards said doing so made them feel impulsive, compared with 13% of those who have used debit cards.

“Many Americans may feel anxious or overwhelmed when they use credit cards because they associate them with out-of-control debt. And for people who struggle with debt and overspending, credit cards can be a problem,” Palmer says. “But for the majority of Americans who have their credit card balances under control, they’re a valuable tool.”

Credit and debit card users think and act differently

Debit card users tend to think debit is better across the board. More than 4 in 5 Americans who primarily use debit for everyday purchases (81%) say a debit card is better to use than a credit card when getting cash from an ATM. And that’s correct — credit cards tend to charge steep cash advance fees. However, many also say debit is the better option over credit for buying groceries (78%), paying for a meal at a restaurant (62%), and getting gas (61%). In fact, credit cards offer more protection, and many earn rewards that amount to a discount on everything you buy. Some cards even offer bonus rewards on groceries, gas or restaurants. So it may be a better idea to use credit for these purchases. We say this with a caveat: If you expect that you won’t pay your credit card bill in full each month, debit or cash is the way to go. Carrying debt results in interest charges. Credit card users are more likely than debit card users to think debit card activity affects credit scores. Among Americans who primarily use credit cards for everyday purchases, 28% think purchase activity on a debit card affects a person’s credit scores, compared with 21% of those who primarily use debit. As noted above, this is incorrect.

Debit card users are more likely to have been in credit card debt compared with credit card users. More than half of Americans (56%) say they have been in credit card debt, meaning they’ve carried a balance from one month to the next. Among those who primarily use a debit card for everyday purchases, 71% have been in credit card debt, compared with only 44% of those who primarily use credit cards.

Debit vs. credit: Which is better when?

Whether consumers should opt for debit or credit depends on their spending habits. But people should be aware of the limitations of each.

Debit cards have no impact on credit scores

Credit scores are designed to gauge how risky it would be to lend you money. They’re influenced by five major factors: payment history, credit utilization, length of credit history, types of accounts and new credit.

When you use a debit card, you’re not borrowing money — you’re pulling your own money directly out of your account. So the purchase activity on a debit card doesn’t affect your credit scores. Nevertheless, almost a quarter of Americans (24%) believe that it does. Millennials are less likely to believe this compared to young boomers: 20% of 18- to 34-year olds say purchase activity on a debit card impacts a person’s credit scores, while 30% of those ages 55-64 believe this.

If you’re looking to build or improve your credit scores, a credit card is one of the easiest ways to do so. Try to keep your balance low in relation to your limit, and pay your bill on time, every time.

Credit cards offer more protection than debit or cash

Half of Americans (50%) say credit cards provide greater purchase protections and financial safety for consumers than debit cards. This is correct. Many credit cards provide price and purchase protections and extended warranty coverage, and credit cards in general protect you better than debit if your card is lost or stolen. Even so, 18% believe debit cards provide more protection and safety than credit cards, and 32% believe they provide equal protection and safety. If your credit card is lost or stolen or the number is used fraudulently, the most you’ll be liable for is $50, and many issuers have zero liability policies for their customers. In essence, with credit card fraud, it’s the issuer’s money at stake. If something happens to your debit card, on the other hand, it’s your money at stake, as purchases are taken directly out of your bank account. The best thing to do no matter which type of card you have is to report loss or theft immediately. This will limit the amount of money you can lose.

“Credit cards come with fraud protection as well as many other benefits,” Palmer says, “which means for most purchases, using a credit card is generally the best option for consumers. Using cash to make a big purchase is like pulling a cookie sheet out of a hot oven without oven mitts — you're leaving yourself completely unprotected.”

Credit is better for most purchases, unless you’re paying interest or incurring fees

Among Americans who primarily use credit cards for everyday purchases, 40% think it’s never better to use a debit card over a credit card. This is false. There are two major reasons to choose debit over credit in certain situations: fees and interest.

If you’ll incur a fee to use a credit card, you should opt for debit. Examples include a cash advance fee for getting money at an ATM or a surcharge for paying a tax or tuition bill with credit. As noted above, debit is also the better choice if you know that you can’t or won’t pay a credit card balance in full, meaning you’ll end up paying interest.

In most other cases, like paying for groceries or gas, it makes sense to use credit.

Yet about 2 in 5 Americans (38%) think it’s better to use a debit card than a credit card when paying for gas, and more than 1 in 3 (35%) don’t think it’s better to use a debit card than a credit card when taking cash out at an ATM.

“In general, credit cards are the better option for most purchases, because they often come with benefits such as purchase protection and rewards points. They can also help you build your credit score,” Palmer says. “But if you are accruing balances on credit cards and paying interest and fees, credit cards quickly become expensive. If you’ll pay more to use a credit card due to an added fee, then using a debit card often makes more sense.”

METHODOLOGY