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To debit or not to debit, that is the question. Okay, so Shakespeare didn’t quite put it like that but it’s a question worth asking if you are determined to tighten your purse strings this year.
The debit or credit conundrum is nothing new and just like any debate worth its salt, there are pros and cons on both sides. This page looks at the six key areas that will help you decide which card to pick next time you make a purchase.
Credit card fees can be expensive especially when they accelerate faster than Formula 1. Credit card companies have ditched annual fees for the more lucrative late fees and over the limit fees, which means your purchase must be within the agreed limit and repaid in full, on time, or else.
Debit cards represent a much tamer form of fee and only arise when a retailer uses a PIN number instead of signing for a transaction. Now that PINs are steadily replacing the need to provide a signature, most banks do not charge for this facility, but it is advisable to check with your card provider beforehand.
Verdict = Debit card.
Having your credit card stolen or used in a fraudulent manner can give you a sleepless night, but the same happening to your debit card truly is the stuff of nightmares. If your credit card is used fraudulently, the thief is in fact spending the bank’s money not your own. This means the bank, not you, is liable for the money it has lost.
A debit card however gives the thief access to your entire current account – unless you act fast and inform your bank before any damage has been done. If you can prove it was fraud and you act fast enough you will get your money back.
Verdict = Credit card
Debit cards can spell open season for your checking account if the PIN falls into the wrong hands. Card scammers can create a fake card, use your PIN at an ATM and empty your account of cash. Falling victim to scamming can happen in a petrol station or shopping mall, all it takes is a dishonest employee. If your debit card is used fraudulently, you may get your money back but only once you have jumped through enough hoops to prove it was fraud.
Verdict = Credit card
Bouncing a check or entering an unauthorized overdraft will make using your debit card very costly. Charging a debit card for daily expenses is a common mistake. Small purchases and lots of them can quickly send your budget spiraling out of control which increases the risk of bouncing a check or busting an overdraft. Using your debit card for a ₤3 sandwich could end up costing ₤30 in fees.
You could consider using credit. Even a ₤60 annual fee on your credit card is a small price to pay if it means you avoid paying a series of overdraft fees.
Verdict = Credit card
A debit card or credit card will be accepted almost everywhere. The most common exception, however, is car rental agencies. You may be unable to use your debit card to hire a car - the reason being the rental company will want to charge your credit card should there be a breach of contract on your part. Another reason a car rental agent may only accept credit cards is the idea that credit proves you must be a responsible citizen. This belief helps them relax a little when you leave the parking lot in their car.
If you are travelling abroad, your debit card may be used to withdraw cash at an ATM but you will not be able to make electronic transactions as you would at home. A credit card on the other hand is accepted everywhere you see the logo.
Verdict = Credit card
Most people prefer debit cards over credit cards because you are using real money and not the borrowed kind – which means you don’t have to pay interest or run the risk of incurring late payment fees etc.
Verdict = Debit card
