Sometime around 2007, Marc Fusaro, then a professor at East Carolina University, sat in a friend’s kitchen and explained that he was researching the methods people use to rein in their credit-card spending. The friend immediately understood. He walked over to the freezer and pulled out a block of ice. Submerged in the middle, Fusaro realized, was a credit card.
For years, Americans have struggled with unrestrained spending on credit and the compounding debt that can come with it. Freezing your credit card (literally) is one way around it. But many Americans have turned to a different method: using a debit card. Around the turn of this century, credit accounted for more than two-thirds of card purchases and debit for about one-third, according to data from The Nilson Report, an industry-research publication. Then, a 2009 law curtailed credit-card access for people under 21. By the 2010s, debit had climbed to almost half of all U.S. card transactions. Its usage dipped after federal regulation capped how much money banks and payment processors could make on debit, but the cards are once again ticking up in popularity.
Today, many companies seem intent on convincing consumers of debit’s coolness. New financial players such as Venmo are now offering debit cards, retrofitting them with reward programs and marketing them heavily. Venmo’s card was name-checked in an ad featuring the White Lotus stars Aimee Lou Wood and Patrick Schwarzenegger; Experian’s appeared in a sponsored post on Travis Kelce’s Instagram.
Broader economic conditions, including high interest rates, are likely part of the reason banks are promoting debit cards so heavily. (Banks profit when customers’ money is parked in a checking account, as it typically is among heavy debit users.) The rise of cashless stores has probably also boosted their appeal. But cultural factors are at play, too: Most consumers reported that they preferred debit cards in a 2022 survey by the financial-services company S&P Global; Gen Z in particular say they are nearly twice as likely to use debit as credit, according to the consultancy group EY. “With young people there is a growing fear of using credit cards,” Lucy F. Ackert, a finance professor at Kennesaw State University, told me. Young adults have watched federal student-loan debt more than double; one in six of them have a debt currently in collections. It’s no wonder so many seem hesitant about a product they may associate with debt. Swiping a debit card may be one small way to reassert control.
The first general-purpose credit cards came out in 1958, when Bank of America mailed them to shoppers across California. After some initial snags—customers receiving duplicate cards, criminals snatching unclaimed ones out of mailboxes—the cards began to turn a profit. Within a little over a decade, more than 1,200 banks had released their own. So in 1985, when Sears debuted its Discover card, the company decided that the best way to set itself apart was to offer a rebate on annual purchases. It was the first modern credit-card rewards program, and consumers flocked to it.
Spending on credit is high—and the way the cards work is most likely partially responsible. For a study published in 2001, researchers asked participants how much they’d pay for certain products and found that those who were told they could use a credit card were willing to shill out in some cases twice as much for the same item as those who were told they had to use cash. The reasons for this are manifold. More than a third of Americans say rewards programs, which are now offered by three-quarters of credit cards, make them spend more. But even without a rewards program, credit cards have a way of coaxing people to use them. When you buy something with them and your bank balance doesn’t immediately go down, spending can feel different. One study concluded that credit cards light up the brain differently than cash.
Unsurprisingly, problems can arise when a person’s credit balance outstrips their savings. Ideally a consumer will be able to pay everything back when their bill is due. But if not, interest (which stands at a historic rate of more than 21 percent for credit-card spending) and late fees accumulate. This debt can snowball. Nationwide, as of the end of 2024, Americans carried $1.2 trillion in credit-card balances, including $645 billion in revolving balances.
Debit cards, which went mainstream in the 1990s, offer an alternative. In 2006, a Newsweek headline declared that America was on track to become “A Debit-Card Nation.” The story argued that whereas credit cards give you a “misty view of what you can afford,” debit cards are linked to real money, which makes you less likely to live beyond your means. Now, there are consequences to overspending on debit as well, which come in the form of overdraft fees. But the typical American’s overdraft bill (about $118 a year as of 2014, the last time it was thoroughly studied) is far less than the average annual credit-card interest payment (which clocks in at $1,657).
Today, as debt-averse attitudes grow more prevalent, it makes sense that Americans are leaning more on debit cards. Research has shown for years that they can help people limit their spending; in a survey-based study of 2,552 U.S. consumers, conducted last year by the news site and research firm PYMNTS, 14 percent of debit-card users said they were using them for online payments to stay within budget. The choice seems particularly popular among Gen Zers, a quarter of whom say they want to avoid debt at all costs, according to a report by The Center for Generational Kinetics, a research firm. Growing up following the Great Recession, many young people, Ackert told me, “have this view that with a credit card, they can get themselves into financial trouble.” Influencers and financial pundits, such as the radio host Dave Ramsey, who has argued that credit-card companies “own you,” have encouraged these attitudes. Not everyone takes such an extreme stance. Still, many TikTokers recommend avoiding credit in at least some scenarios and using debit instead.
Of course, anti-debt beliefs only partially explain the shift to debit. When credit users can’t pay off their monthly bill in full, any new purchase made with the same card immediately starts accruing interest; so some customers may shift to debit to avoid that additional interest, Sean Higgins, a Northwestern University finance professor, told me. Debit use can also save customers money at independent stores, some of which apply hefty surcharges on credit. (Surcharges on debit are illegal.) And more consumers are linking debit cards to their digital wallets and to their buy-now-pay-later (BNPL) accounts, which may drive debit spending further as these payment forms become more popular.
Responding to the demand, and hoping to entice younger shoppers into their financial ecosystems, payment facilitators such as Cash App, the BNPL provider Klarna, the fintech bank Chime, and even American Express have recently launched their own debit cards. About 40 percent of people now receive some form of money back when they use these cards, because of new debit rewards programs. Just as with credit-card points, these programs seem to induce people to buy more. Scholars have associated the end of a debit rewards program with a 29 percent drop in spending across the board.
Credit cards still make up about half of all card transactions, and although many people are cutting back on credit spending, few are ditching the cards entirely. For anyone hit with an essential expense they can’t afford, credit might feel like the only option. And the wealthy are a major holdout. American households earning more than $150,000 are roughly twice as likely to prefer credit than those earning between $25,000 and $49,999. In many ways, this disparity is not surprising. Rich consumers can afford to play the game of credit-card rewards: spending extravagantly in exchange for a few points earned (no matter how Sisyphean they’ve become to redeem). But many of those without as much financial security are just trying to get off the treadmill of credit-card debt. Debit cards are not going to break that cycle—but for some, they may be an off-ramp.
The post Debit Cards Are Taking Over appeared first on The Atlantic.
