May 9, 2019

When your bank offers you a choice between a Debit or Credit Card, there are a few questions that go through your mind. For most consumers, being offered this choice for the first time can be overwhelming. Debit or Credit? An extra line of spending or a debt free option? Making a decision about which card to opt for should not be taken lightly. Each offers certain advantages and choosing wisely can be the difference between either saving or losing money. 

Which Card is best for me? 

Both Credit and Debit Cards have advantages and disadvantages. They can be used for most financial transactions such as online shopping, paying bills and everyday spending. Both can also be used to withdraw money from ATMs. So how should consumers decide which is best for them? 

Advantages of Debit Cards 

Lower Debt

The obvious advantage for consumers that choose a Debit Card over a Credit Card, is that you don’t rack up debt while using it. Debit Cards use money that is available in consumer’s bank accounts. Whether you are paying a bill or shopping online, the funds you use will be taken directly from your account. 

Lower fees when withdrawing

There are also lower fees associated with using Debit Cards. These will be typically associated with withdrawing from another banks ATM or using another Banks EFTPOS or withdrawing funds internationally. Should you need to withdraw from an ATM within your banks network, the money comes straight from your checking account. ATM withdrawals using Credit Card known as cash advances are very expensive, you will pay an expensive ATM withdrawal charge and a high interest rate on the amount borrowed. 

Disadvantages of Debit Cards 

Risk of losing funds in your account 

There is minimum protection. If your card is lost or card details are stolen, you risk losing money from your account 

There is no grace period. Unlike a credit card, a debit card uses funds directly. A credit card allows you to borrow funds on credit, leaving disposable cash in your account. 

Fees. Using your debit card for ATM transactions may be costly if the ATM is not affiliated with your institution. 

Advantages of Credit Cards 

Funds in your checking account are kept safe

When purchases are made using Credit Cards, you are using a line of credit that the bank has extended to you. So you are basically using the bank’s money to make a purchase which you would be required to repay with certain interest charged. However if you make a purchase online and for some reason it is not shipped to you or if your card is stolen or lost and unauthorised purchases are made, you can dispute these charges with the bank. Most importantly you do not lose any funds from your debit account. 

Credit Card Rewards

Some Credit Cards offer rewards such as travel miles when they are used internationally. Consumers should check with their bank on the rewards programmes offered when using a Credit Card. 

An Emergency Fund

Credit Cards offer their users a high limit that can be utilised in case of an emergency. Perhaps they may have a hospital bill to pay or may need to purchase something urgently. If they have limited savings, a Credit Card can be used to meet these needs. 

Accessibility of Funds while travelling

Both Credit and Debit Cards offer their users flexibility when travelling. Consumers do not need to carry large sums of cash on them if they use either of these cards. 

Disadvantages of Credit Card 

Overspending: Credit cards can make life easier, which also make overspending easier as well. With a credit card, you’re spending money you don’t necessarily have yet. If you’re not careful, this can quickly lead to unexpected debt 

Interest and fees: Using credit is essentially borrowing. Mismanaging a credit card can lead not only to a high balance, but also to debt in the form of interest and fees. 

Fraud: Credit cards (and other electronic forms of payment) carry unique dangers. Credit cards can be stolen, their numbers can be copied, and they can be used to steal your money and identity. 

Mounting Debt: If you carry a balance on your credit card from month to month, it can be very easy for charges and interest to rack up. Many people don’t expect credit cards to be gateways to extra debt, but if you’re not careful, that’s exactly what happens. 

Consumers are encouraged to choose wisely between a Debit and Credit Card and decide which fits their needs best. Should consumers have both Debit and Credit Cards, it is important to exercise your consumer responsibilities and know when to utilize either card. 

Consumers who need further advice are encouraged to call the Consumer Council of Fiji National Consumer Helpline on toll free number 155.