Debit card? Credit Card? You choose

So, which is best for me, if your asking yourself this question then chances are your either new to the whole credit card dilemma or had one previously with bad experiences and wondering if a debit card is any better. Let’s consider the benefits of both.

Benefits of a Credit Card:  I am sure you can no doubt come up with a lot of others but in this article, I want to focus on these three as they seem to be the most widely promoted by credit card providers. Let’s get started.

  • Reward Points nothing feels better than feeling like we got something for nothing
    Putting everything you can on your credit card then paying your card in full each month is a benefit. Reward points can accumulate quick and let you cash in on things that would normally need your hard-earned cash for.If you are recycling money (something most cardholders do) that is making a minimal payment then spending what was left after the interest has been deducted, then you certainly aren’t going to accumulate reward points at a rate worthwhile and more importantly the cost of servicing interest will significantly outstrip any reward benefit you may have been hoping for.
  • Convenience – it’s easy and just about everywhere you go you can use it.
    Credit cards can be used almost anywhere and are great for taking care of the unexpected especially if you don’t have sufficient savings. There are also so many more options than ever before for transactions to be done online, so yes, a credit card can be very convenient.With convenience though comes a very real risk of complacency so be sure to think twice about your purchases and ensure you know you can pay it all back when it becomes due. If you can’t then that convenience can have a nasty and costly consequence.
  • Interest Free Periods – using someone else’s money instead of yours sounds great
    Okay so this is the big one and usually the one we think is our biggest benefit. You might want to read this twice to make sure you understand what I am showing you. If you are using someone else’s money then you are likely to be doing it for one of two reasons. Firstly, to make your own money work smarter for you during the interest free period or secondly because you don’t have sufficient cash flow and need access to credit to keep things paid until you get money next.So, if you are one of those really disciplined individuals who use your credit card while you leave your own money alone in your bank account over the interest free period you need to understand the following.

Let’s assume your average spend per calendar month is $4,000. By using your credit card, you have been able to leave your money in your bank account and let’s assume you are getting a net return of 3%. You would have earned $10 for the month.

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At 4.95% (average floating rate at the time of writing this article) having this offset your mortgage would have saved you $16.50 for the month or $198 a year. Multiply that by 25 years (a typical mortgage term) and this process has only saved you $4,950. Don’t be fooled into thinking this process will help you pay off your mortgage faster as some lenders would have you believe. It will take a lot more than just what you can save in interest by using your credit card so get some additional advice from someone who knows what they are talking about and has helped others pay off their mortgage faster. Find out what other strategies and disciplines you will need if paying your mortgage off faster is your objective.

Benefits of a Debit Card: Again, just like a credit card I am sure there are more benefits but these are the ones I believe are the best so let’s talk about these.

  1. Convenience it’s easy and just about everywhere you go you can use it.
    Just like a credit card they can be used in most places you can use a credit card and for online purchases. You can also change through logging into your internet banking which account it accesses funds from before you complete the transaction so you have a greater ability to ensure your card is debiting funds from the right account if you are working to a budget/plan.
  2.  Safety – It’s harder to get yourself further into debt
    You can’t spend money ahead of having it. This means you won’t have a balance at a future date that you cannot pay and therefore removes the risk off interest payments absorbing your money, money you will no doubt have a better use for elsewhere and prefer to keep than give to a bank.
  3. Builds discipline – You can only access your money
    Because a debit card only allows you to access your money (unless of course your bank has given you an overdraft too) then your spending is more disciplined. You need to think about your purchases especially online ones, you can only spend your money once so if you overspend and don’t leave enough funds for other payments due then you’re in trouble.

Whether it is a credit card or debit card you opt for take time to step back and ask yourself what is the purpose of the card? What do you need this card to do for you? Some would argue that a debit card cannot be used for a lot of the things that a credit card can but if you take time to ask you may find it does everything you need it to.

I trust this article helps you sit back and carefully consider the right choice for you. If you currently have a credit card with a debt you don’t enjoy, check out our online calculator, it may help you work out how much you need to be paying to get it paid off.

An interesting fact you may not know

Did you know that the first credit card was “Diners Club”? Prior to this it was common practice for stores and merchants to provide a card that would allow purchase of goods solely with that merchant. The idea behind these cards was to create loyalty with their customer by allowing them to obtain goods without the need to return if they didn’t have sufficient money with them at the time.

The original card produced had a requirement of payment in full at the end of each month therefore not attracting any cost to the user. It was approximately 9 years later they progressed to a card where you could then have a revolving limit and the introduction of interest and charge costs began.

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