Debit Cards Take the Lead as Credit Card Spending Growth Slows

Americans frequently reached for their credit cards to complete transactions during the pandemic era, but they’ve begun pulling back on that practice, according The Wall Street Journal. 

Debit card spending has outpaced credit card speding for the first time in four years, the WSJ reports.

This shift in consumer behavior may force credit card issuers to change strategy for revenue growth, customer acquisition, and retention.

The WSJ cited spending data from Mastercard and Visa that showed debit card spending in the U.S. went up 6.57% in the first half of this year from the same period last year, while credit card spending only rose by 5.65%.

The good news for credit card issuers is that spending is still increasing. But after 14 consecutive quarters in which credit card spending outpaced debit card spending, issuers may be feeling nervous about which payment instrument cardholders will reach for more often throughout the rest of 2025 and beyond.

Issuers may be particularly concerned when they look at spending activity by generation. The oldest members of Generation Z are now approaching 30.

Most members of Generation Z prefer using a debit card over a credit card.

A recent study shows that Gen Z is the biggest generation in history, accounting for almost 25% of the world’s population. In addition to being the largest generation, Gen Z also stands to be the wealthiest and highest-spending generation the world has ever seen, the study indicates.

More than 60% of Gen Z consumers prefer to use cash or a debit card as opposed to a credit card for the control and predictability they offer, according to Prashant Shah, Vice President, Product Management at Galileo Financial Technologies.

“There’s always been a segment of people who prefer debit, but now we’re watching that group expand, with Gen Z leading the way,” Shah told us. 

Shah said he doesn’t see the increase in debit card use as temporary, adding that “it looks much more like a lasting change in consumer behavior.”

Credit and debit cards are the same size, and both payment instruments allow people to buy things without having to carry cash or a checkbook. But the similarities between the two types of cards largely end there, and the differences between them can influence which card a consumer uses more often.

Interest rates may be motivating people to use their debit cards more, said Paul Ferrara, a Chartered Investment Manager and Senior Wealth Counselor at Avenue Investment Management.

Over the past two years, credit cards became unaffordable for people who carried relatively large balances, especially with credit card interest rates increasing along the way, Ferrara told us.

The Forbes Advisor’s weekly credit card rate review reports that the average credit card interest rate currently stands at more than 25%, an increase from the average card interest rate of 21.5% in May 2024, according to Federal Reserve.

And just two years prior to then, the average rate was only 15.1%, according to Forbes.

“Reducing that debt and subsequently managing expenditure by debit has turned into a means of maintaining a state of peace of mind,” Ferrara said.

The next meeting of the Federal Open Market Committee comes in mid-September. Actions the committee takes at the meeting may serve to lower credit card interest rates over time.

In addition to avoiding relatively high interest rates, people may also be turning to debit cards as part of an overall strategy to keep a closer watch on their spending.

“Consumers are increasingly favoring debit cards for both online and physical purchases based on their ability to offer immediate transaction visibility and tighter budget control, which reinforces financial discipline,” said Christina Ochsner, Director of Research and Consulting with TSG, an advisory firm focused on the payments industry.

Credit card issuers have a few levers they can pull to try to get credit card spending back on track.

For starters, issuers can examine the benefits their cards bring to ensure they’re attractive to different market segments. They can compare their rewards programs with what competitors offer to understand whether they’re powerful enough to stand out in a crowd.

Research from the American Bankers Association reveals that 91% of consumers say they value the rewards program their credit card comes with. But Ferrara told us card issuers may have to do more to increase the appeal of credit cards.

“The card issuers cannot use cashback or travel points as the sole competitive factors,” he said. 

Developing product features that help people manage their money more effectively is one technique Ferrara pointed out that may lead people to use their credit cards more.

Issuers may be able to win more business by offering cardholders tools that help them manage credit more responsibly.

Issuers can consider offering tools that remind a customer when they’re getting close to exceeding their monthly budgets. Ferrara told us programs that help cardholders stay on top of their spending can position credit as a solution that can help people with financial management as opposed to strictly a tool for borrowing.

Shah also told us that credit card issuers can elevate their products in the eyes of the public by helping consumers use credit more wisely, offering that issuers can extend clear terms and fair pricing to keep credit cards relevant.

“When paired with financial literacy and features like payment flexibility or proactive alerts, credit cards become a trusted resource for unexpected needs rather than a burden,” Shah said. “That balance lets customers rely on debit day-to-day, while seeing credit as a smart, supportive option, which strengthens long-term loyalty.”