Debit or Credit Card: Which one should I choose?

While cash transactions haven’t disappeared altogether, more and more people are choosing to go plastic when it comes to spending. Most find using their credit or debit card more convenient than carrying a lot of cash around. It’s probably safer too.

What is a credit card?

Nearly everyone has at least one credit card as they allow you to pay bills and make purchases on credit which gives you the flexibility to buy now and pay later. The advantages of using a credit card are:

  • You have around 30 days grace to pay off the amount on the card
  • You can use the minimum payment option and just pay a percentage of the amount owing
  • They allow you to always have funds on hand without having to carry cash or locate and ATM
  • They are very convenient

When used responsibly, credit cards are a good idea but bear in mind that you will incur interest charges on money still owing when you opt to only pay the minimum amount required on your statement. Always try to pay the full amount owing by the payment date to avoid excessive interest increasing your debt.  It’s also worth noting that you will be charged interest if you make a cash withdrawal using you credit card.

Interest rates can vary from one financial institution to the next so compare the rates before signing up for a card and make sure you keep track of your card usage to avoid slipping into serious credit card debt.

What is a debit card?

With a debit card you are using your own money. While a credit card charges it’s usage to your line of credit, a debit card accesses the funds from your bank account. Debit cards offer the same convenience as a credit card but as it draws the money from your own funds you are not running up a debt because you can only spend as much as you have in your bank account.

All the same, it pays to keep track of what you’re spending as it’s possible to overdraw your account with a debit card and that will incur a bank charge. This can happen as the amounts you spend on your card are placed on hold until the amounts are transferred to the accounts where you have used your card and these transactions can take a couple of days to go through. You may notice when checking your account balance that you have a “current” balance and an “available” balance. The latter is what you have available to spend while the former shows that money is currently on hold.

Some people operate debit as well as credit cards but your financial health should indicate which card is better for you. Used unwisely, credit cards can get you into trouble with debt so if you know you can’t afford a credit card debt a debit card would be much safer.

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