Guide to Payment Methods: Credit, Debit and Alternative Options

Every time you buy something, you’re making a choice about how to pay. That split-second decision—credit, debit or an alternative option—affects more than just how money leaves your account. It impacts your fraud protection, credit score, budget and even how much you get back in rewards.

The right payment method can help you build credit or earn rewards. It can also help you stick to your budget. Once you know how each payment type works, you can spend with savvy and make the most of every transaction.

Common payment methods

You have more payment options today than ever before. Each one moves money differently—some pull from your bank account immediately, while others let you borrow or pay over time.

1. Credit cards let you borrow money from your card issuer to make purchases.
2. Debit cards pull money directly from your checking account when you make a purchase.
3. Digital wallets store your payment information on your phone or device, then you tap to pay.
4. Buy now, pay later services split larger purchases into smaller installment payments.

Context matters for each of these payment methods, and not all methods are accepted everywhere. Getting familiar with when and where to use each will put you in a position to transact wisely in any situation. 

1. Credit cards

When you use a credit card, you’re borrowing money from your card issuer to make a purchase. You’ll need to pay that money back later, either in full or over time. Each month, you’ll get a statement showing what you owe and your minimum payment due.

• Pros: Credit cards offer strong fraud protection. If someone makes unauthorized charges on your card, you’re typically not responsible for them when you report the charges to your issuer/financial institution. Many cards also come with rewards—cash back, points or miles you earn on every purchase. Using a credit card the right way can help you build credit. Credit matters when you apply for a car loan, home loan or apartment.
• Cons: Credit cards can let you spend beyond what may be in your bank account right now, so it helps to track what you charge. If you don’t pay your full balance each month, you’ll pay interest on what you owe. Paying your full balance each month helps you avoid interest charges and keep more money in your pocket.

When to use credit cards

Credit cards may work best for larger purchases you can pay off right away, like plane tickets or hotel stays, where you want the extra fraud protection. They’re also smart for recurring bills like streaming services or phone plans—you’ll earn rewards on expenses you’re already paying. And if you’re traveling abroad, you can often get a good currency exchange rate via a credit card—just be sure to check if your card has foreign transaction fees.

If you want to build credit, use a credit card for everyday purchases. Then pay it off in full each month to build a strong payment history.

2. Debit cards

When you use a debit card, money comes directly out of your checking account. The funds typically leave your account within a day or two of your purchase. This means you can only spend what you actually have available in your account.

• Pros: Debit cards can help you stick to your budget because you’re spending your own money, not borrowed funds. There’s no interest to worry about and no monthly bill to pay. You also get fraud protection—if someone uses your card without permission, you can report it and get your money back.
• Cons: Debit cards won’t help you build credit since you’re spending your own money rather than borrowing. Some debit cards offer rewards, but they’re less common than credit card rewards. And while you do have fraud protection, it may take a few days to get the money back in your account.

When to use debit cards

Debit cards are great for everyday purchases like groceries, gas or coffee, where you want to track your spending closely. They’re also smart for situations where it might be easy to overspend, like shopping trips or nights out. If you’re working to pay down debt or stick to a tight budget, using a debit card can help keep you from adding to what you owe.

3. Digital wallets

Digital wallets store your credit or debit card information on your phone, watch or other device. Mobile wallets, such as Apple Pay® and Google Pay™, are popular examples that enable contactless payments both in brick-and-mortar stores and online. When you’re ready to pay, you hold your device near the card reader and tap or scan to complete the purchase. The wallet uses your saved card to process the payment without you needing to pull out a physical card.

• Pros: Digital wallets add an extra layer of security because they don’t share your actual card number with merchants. Instead, they create a one-time code for each purchase. This makes it harder for anyone to steal your payment information. They’re also fast and convenient—there’s no need to dig through your wallet or type in card numbers for online purchases.
• Cons: Digital wallet acceptance is growing, but it’s not as standard as credit or debit cards. You’ll need a backup payment method for places that don’t have tap-to-pay readers. Keep your phone charged so your digital wallet is ready when you need it.

When to use digital wallets

Digital wallets work well for quick purchases at stores that accept tap-to-pay, like coffee shops, grocery stores or gas stations. They’re also convenient for online shopping since you can check out with one tap instead of entering your card details each time. If you’re concerned about card skimmers or keeping your card information secure, digital wallets offer stronger protection than swiping a physical card.

4. Buy now, pay later

Buy now, pay later (BNPL) loans let you split a purchase into smaller payments over time, usually interest-free if you pay on schedule. You pay part of the cost at checkout, then make the remaining payments over a few weeks or months. Popular services include Afterpay, Klarna and Affirm.

• Pros: BNPL makes larger purchases more manageable by spreading the cost out over time. Most services don’t charge interest if you pay on time, and approval is often easier than getting a credit card. You can buy what you need now without paying the full amount upfront.
• Cons: BNPL works best when you plan for the payments and stick to one or two purchases at a time. If you miss a payment, you might face late fees or interest charges. Track your payment dates with calendar reminders, especially if you’re using BNPL for multiple purchases. These services also don’t typically help you build credit like a credit card can.

When to use buy now, pay later

BNPL may work best for planned purchases you can afford but want to spread out, like furniture, electronics or appliances. It’s useful when you need something now, but your paycheck comes in a week or two. Just make sure you only use it for items you actually need and can commit to paying off on schedule. Use BNPL for planned purchases rather than impulse buys, and keep track of your payment schedule with reminders.

Common purchases and payment options

Different purchases call for different payment methods. Matching the right payment type to each situation can help you maximize rewards, stay protected and keep your budget on track.

• Booking travel: Use a credit card for flights, hotels and rental cars. They offer strong fraud protection and can dispute charges if something goes wrong. Many travel purchases also earn extra rewards points.
• Buying groceries: Debit cards work well for weekly grocery trips since they help you stick to your budget. You’re spending money you already have, which makes it easier to track your food spending.
• Paying recurring bills: Set up credit cards for monthly subscriptions, utilities and phone bills. You’ll earn rewards on expenses you’re already paying, and automatic payments mean you won’t miss due dates.
• Shopping online: Digital wallets add extra security when buying from websites. They keep your actual card number private and speed up checkout since your payment info is already saved.
• Making large one-time purchases: Buy now, pay later loans can help spread the cost of furniture, appliances or electronics over a few months without interest if you pay on time.
• Paying medical bills: Ask your provider about payment plans first, then consider putting necessary medical expenses on a credit card only if you can pay it off quickly.
• Everyday small purchases: Digital wallets are fast for coffee, lunch or quick store runs. Tap your phone and go without fumbling for a physical card.

Factors to consider when choosing a payment method

Choosing the best payment method means thinking about more than just convenience. Think about what matters most for each purchase. Do you want to earn rewards, protect your information or stick to your budget?

Make every purchase work for you

No matter how you choose to pay, Navy Federal is here to help you make the most of your money. Explore credit card basics to start earning rewards on everyday purchases, or learn more about managing your credit card payments to keep your finances on track. If you’re looking for tips to stay in control of your spending, discover how to stick to a budget with your debit card. 

Navy Federal’s Zero Liability protection keeps your money safe—no matter which preferred payment method you use. We’re here to support you at every step, whether you’re building credit, earning rewards or simply making sure your money goes further.