Most store purchases today involve using some form of plastic payment, and that means big bucks for the likes of Citigroup (NYSE:C), MasterCard (NYSE:MA), American Express (NYSE:AXP), and other issuers of credit, debit, and charge cards. More and more vendors -- including big names McDonald's (NYSE:MCD), Home Depot (NYSE:HD), CVS (NYSE:CVS), and Walgreen (NYSE:WAG) -- are now even permitting quick, no-signature credit card transactions.

I go through life with my credit card on hand, but I charge only what I can afford to pay for, and I pay my bills on time. All around me, though, I see people with debit cards. I have one, too, from my bank, but I never use it. I thought about this the other day, and I couldn't remember exactly why I was sticking with credit. So I thought I'd take the opportunity to review the differences between the two.

  • When you pay with a credit card, you're essentially borrowing money from a bank, and you pay on the loan when you pay your bill. When you pay with a debit card and use a PIN, the funds are immediately withdrawn from your bank account. If the debit transaction requires a signature, it may take a few hours or days for the money to be withdrawn.

  • Many credit cards offer the chance to earn cash back or other "rewards." Relatively few debit cards do the same.

  • Credit cards help you establish a credit history and therefore a credit score, so that you can start to more easily borrow money. Not so with debit cards.

  • With credit cards, if your card is stolen and used fraudulently, you're typically liable for only $50 in unauthorized charges, though some cards offer zero liability. With debit cards, that fraudulent use will have sucked money out of your bank account, and it may take a little while to get it back. You may end up paying more than $50, especially if you don't report the theft within a day or two.

Here are some strategies to consider:

  • Have a separate bank account for your debit card to draw from -- one that doesn't contain most of your life's savings.

  • If an item that you order arrives damaged, credit cards offer more protections -- such as the ability to contest the transaction -- than other forms of payment do.

  • If you're mired in credit card debt and have trouble paying your bills on time, or if you just have trouble not charging more than you can afford, then consider favoring your debit card. Credit cards can easily get you in a lot of trouble.

  • Choose your cards, especially your credit cards, carefully. They can be great conveniences, but they can also needlessly eat up a lot of your money, such as when they charge you interest rates. Some big banks charge more than 25% in annual rates. My colleague Tim Beyers recently wrote about the "worst credit card ever" -- the kind from which you want to steer well clear.

Fools opine
On our discussion boards, I found a long discussion on the merits of credit vs. debit that featured more than 110 posts. You can read the whole thing if you like. Here are some highlights:

  • DBAVelvet74 noted: "... no one ever claimed that there are no problems with credit cards. I've had issues with both, and it was so much easier when it was the [credit card company's] money in limbo rather than my money. When I had debit card issues I was left trying to figure out how to cover my rent on time while I waited for the investigation to return my money to me."

  • Azoreanhp said: "Recently I switched from using my credit card to my debit card because I do not want to continue to pay increasing finance charges on credit [card] balances that seem to take forever to go down. Now when I make a purchase with a debit card, it hurts me in my pocketbook just as it should and I do think twice before using it."

Learn more
Meanwhile, you can learn much more about the credit card industry in our Credit Center, which also features tips on how to choose the best card for yourself, how to get out of debt, and how to manage your credit effectively. There's some great stuff in our Credit Center, and it's all free reading.

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Longtime Fool contributor Selena Maranjian owns shares of McDonald's and Home Depot. For more about Selena, viewher bio and her profile. Home Depot and MasterCard are Motley Fool Inside Value recommendations. The Motley Fool isFools writing for Fools.