As with anything, there are trends in personal finance. In 2013, the debit card was king. Approximately 50% of us preferred using a debit card to a credit card. But by 2016, the tables had turned.
Suddenly, credit card payments were on the rise. More people said they preferred using a credit card to a debit card. Does it come down to a matter of preference? Or is one a better fit for your financial needs?
What’s the Difference?
Before you can assess which card better meets your financial needs, you need a strong understanding of the differences between them. Debit cards are issued by banks. They allow you to draw on funds you have previously deposited with the institution. Basically, you are spending your money, you already deposited into the bank.
Credit cards and digital credit products work slightly differently. They allow you to spend money, however, the charges don’t come from your funds. They go to the issuer. You then repay the funds at a later date. Your credit card or digital credit provider will set the spending limit, unlike with a debit card, where the spending limit depends on what you have in your account.
Why Use a Debit Card?
Debit cards have their advantages. Firstly, they usually come without any annual fees. Unless you spend more than you have in your account, you won’t incur any additional payments beyond your purchases.
Also, debit cards are good for people who have compulsive spending habits. Because they are directly linked to your bank account, it feels like you are spending real money. Some people get carried away with credit cards when they can spend whatever they please, and it doesn’t directly leave their bank account. Debit cards allow for much more controlled spending.
Why Use a Credit Card or Digital Credit Product?
There are some serious advantages in using a credit card/digital credit over a debit card. Firstly, paying the balance off, in full, and on time, allows you to build up a good credit score. This is the score that indicates you are a responsible borrower and is what lenders look at when they are deciding a personal loan or mortgage application.
Credit cards and digital credit products also offer better protection against fraud. If your debit card is used in a fraudulent transaction, the thieves will have access to your personal finances. With credit products, if they fall into the hands of fraudsters, they would rack up charges from your cardit issuer. Most credit issuers offer a zero-liability policy. This means you are not left out of pocket.
There is also the opportunity to dispute unfair payments on your credit card/digital credit product. If you purchased an item that was damaged or lost during transit, you may be able to recover the costs through your credit card issuer’s payment dispute service.
Credit cards and digital credit products are also simple to get. Apply for instant credit online with ePay Later.
Consider your personal financial needs before you decide to use credit or debit. Each has its own set of advantages and drawbacks. Make sure you are spending wisely by bearing these in mind before making any payment.
