The particular type of plastic you pull out at the shops is a big deal, particularly to those providing it. With most people owning one or more credit cards and debit cards, choosing how to pay for the groceries can be harder than choosing the groceries themselves.
There are many factors influencing which method of payment you choose, but the largest factor is often whether or not you want to use your own money, rather than a short-term loan from the bank via a credit card.
Interestingly, debit cards have become increasingly popular since the GFC. According to RBA statistics:
- In August 2004, 49% of card purchases were via debit card; 51% were via credit card
- In August 2014, 66% of card purchases were via debit card; 34% were via credit card
As of July 2016, this has become even more pronounced – 406 million transactions in that month were via debit card (67%), and only 195 million transactions in that month were via credit card (32%). Australia now has 43 million debit accounts and just 16 million credit accounts (RBA).
That’s more than 2 debit cards for every credit card.
Each method has benefits and shortcomings. If nothing else, electronic payment methods have brought new ease to tracking spending through statements and now up-to-the-minute online records.
The shift towards debit cards is logical. They bridge the gap between credit cards and EFTPOS or ATM only cards, giving the full access benefits of credit cards while maintaining the certainty of using your own money. While an EFTPOS or ATM card (also called a keycard or bank card) cannot be used for online shopping, a debit card linked to a transaction account can.
Pros and Cons: Debit Card vs. Credit Card
Different payments methods suit different situations. The regimented spending habits of a family putting everything through a credit card and maximising rewards may not suit a younger person on a casual income and with an eye for a “bargain”.
Pros of Debit Cards
||Helpful when trying to stick to a budget.|
|Attractive for those who want to spend their own money when they travel overseas.|
|A good alternative to credit when shopping online.|
|If your card is stolen, the thief’s spending power is limited to your daily spending limit and the amount of money you keep in your account.|
Pros of Credit Cards
|Rewards programs can be worthwhile for a person who puts the majority of their spending through the credit cards, earns the maximum points, and pays off their bill in full every month. Points can then be redeemed for the rewards you value.|
|Interest-free days can come in handy for those who pay their bill in full every month.|
|Ability to use the bank’s money while you’re between paydays.|
|If your card is stolen, you have to lock your credit card but your savings or transaction account are not frozen from access, so you still have an alternative payment method.|
It is vital to note that all the benefits of credit cards disappear if you don’t or can’t pay your credit card in full each month! There is no point in getting into debt if you can avoid it.