Which is better, credit or debit? It depends on you.

By Sabrina Karl

Whether you’re pumping gas, checking out at the supermarket, or shopping online, choosing to pay with debit or credit is transactionally the same. But that doesn’t mean both are equal, and what’s best boils down to your financial personality.

For those who can reliably pay their full card balance every month, credit cards offer significant advantages over debit cards. The biggest of these have to do with protecting against fraud, earning rewards, and building credit.

Fraud protection is one of the biggest differences between buying with credit vs. debit, due to the Fair Credit Billing Act. Under the law’s protections, credit card holders are not liable beyond $50 for a fraudulent charge. The law does not, however, apply to debit cards.

Many credit cards also offer rewards programs, which means you can earn cash back, travel miles, or other perks as a fringe benefit on your card spending.

Holding a credit card also contributes to your credit report, with responsible payment behavior helping build a strong credit score, which can in turn make you eligible for lower rates on loans and insurance.

But reaping these benefits without incurring the risks of credit cards depends on financial self discipline, and some consumers prefer enlisting help to avoid the temptation of overspending, and the resulting interest and debt it can lead to.

That’s where debit cards can be useful, as they prevent you from spending more than you have in your checking account. By forcing you to rely only on funds on hand at the bank, budgeting can be easier to stick to.

If this benefit is strong for you, it can certainly outweigh the rewards, credit-building, and fraud protection of credit cards, because those benefits will be quickly eroded if you accumulate debt, expensive interest payments, and a negative credit report.