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Understanding the credit card vs. debit card

Credit Card Vs. Debit Card When Trying To Get Out Of Debt

by / 0 Comments / Mar 19, 2015

Credit cards can be wonderful financial tools when used responsibly, but if you let your spending get out of control, and you then become overwhelmed with credit card debt, you need to start thinking of alternatives if you want to be debt-free. It’s the old credit card vs. debit card debate. One popular idea, and one that financial guru Dave Ramsey likes, is to stop using your credit card and switch to a debit card instead. You can use a debit card everywhere you were using your credit card, but the debit card forces you to pay for everything in cash.

Linked to Your Bank Account

A debit card links to your bank account. Therefore, you can spend only what you have in your account. You will not go into debt, incur interest or have to deal with possible late fees when you use a debit card. If you don’t keep accurate records and don’t know exactly what you have in your bank account, however, you run the risk of spending more than what you have. If you have overdraft protection, your bank covers the overage. But you must pay the overage back plus a fee, typically around $34. If you don’t have overdraft protection, your transaction will be declined. Neither outcome is desirable, so always keep a record of what you have and what you spend.

How to Make the Switch

It might sound like a great idea to pay for everything using cash in the form of a debit card, but it’s not always easy to make that happen. You probably need to make some sacrifices. Paying in cash forces you to buy only items that you really need or can truly afford. It’s much easier to whip out a credit card and worry about how or even if you can pay for the item later, but that’s what likely got you into debt in the first place. You’ll need to adopt a different mindset: if you don’t have the money, you are not buying it.

How to Get Out of Credit Card Debt

    Using a debit card as a method to get out of debt works best when you are also systematically paying down your credit card debt. Use the snowball method to do this. Here’s how:

  1. Look at all your debts, and focus on paying one off by paying as much as you can afford while you pay the minimum on the other debts.
  2. The snowball method has you pick the card you owe the least on to give you that sense of accomplishment needed to keep going.
  3. You then tackle the next biggest debt and so on. Paying off the cards starts collecting speed, like a snowball.

Another method, and one that make the most mathematical sense, is to pay off the card with the highest interest rate first. Once you have paid off that debt, apply what you were paying to the card with the next highest interest rate (plus the minimum you were already paying) until that second debt is gone. Keep doing this until all the debts are paid. You are simultaneously paying down debt while not creating any new debt since you are using debit cards for all new purchases.


If you use a debit card, get in the habit of monitoring your account daily. That’s the best way to keep track of what you can spend and to catch unauthorized usage or debit card fraud right away. Once you are free from credit card debt, ask yourself again about the credit card vs. debit card. You can continue to use only a debit card, or you can start using your credit card again, but only if you will pay off the balance at the end of each month.

About the Author

Laura Agadoni has a background in credit union marketing, and her articles appear in various financial publications such as The Houston Chronicle's small business section, The Motley Fool, RISE Blog, The Penny Hoarder, San Francisco Gate's real estate section, Zacks, Opposing Views, Arizona Central's small business section and The Nest's budgeting money section. www.lauraagadoni.com

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