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Q&A - Credit or debit card?

Q. My dad keeps hassling me to cut up my credit card, following a number of regrettable late night, drinking experiences and overseas holidays which resulted in an outrageous credit card bills. What are the arguments for and against the more sedate debit card. 

A. Let’s start with the advantages. The obvious one is you don’t have to carry a lot of cash and that means you can get interest on the money you have not drawn out of your bank account. Most merchants accept debit cards and as long as you protect your pin number, it’s a safe option. With credit cards the signature option can make it easy for thieves. Also many shops and all ATM’s will give you money. Even more important is that it protects you from the old credit card “why not?” trap. It’s just too easy to hit the plastic now and cry later. At least, if you have to draw it out, you have time to think about it and so it reduces the impulse purchases.

The disadvantage is that you have to be mindful of your bank balance and this could lead to embarrassing moments when you see the despised “insufficient funds” note! Not wanting to rub it in but there are also those words you never want to hear on a checkout line: “Declined!”

You do have to keep some cash as some cafes and your kid’s tuck shop usually will want to see some real money. Then there are the fees for using many ATMs and these can add up if you don’t plan your cash flow well.

Generally, using a debit card is both a step towards being really responsible with your money and ultimately should be used sensibly in conjunction with cash and a credit card. However, if you’re a shocker when it comes to plastic on the never, never, go for the debit card!

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Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

 

Published on: Tuesday, September 01, 2009

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