Pros and cons of debit versus credit cards

DEBIT cards are more than twice as popular as credit cards among Australians but the use of both forms of plastic is waning.

They are losing the battle for market share against newer financial technologies such as Apple Pay and buy now, pay later schemes.

Fresh data from the Reserve Bank of Australia shows the number of debit cards on issue has dropped 4.8 per cent in two years, to 43.5 million. The number of credit cards in Aussie hands is down 17 per cent to 19.4 million over the same period.

Both types of cards still have their advantages. And credit cards have some big disadvantages, including a higher risk of impulse buys.

Certified financial planner Matt Hern said credit cards were “the gateway experience” to financial tragedy.

“Our brains are not well wired to resist the abundant temptation around us every day,” he said.

From a money management perspective, debit cards seem a safer bet.

“Debit cards are spending our own money,” Mr Hern said.

“That works better with our brains. The experience of missing out is a good incentive to learn how to better proportion our resources.”

Fitzpatricks Private Wealth certified financial planner Gianna Thomson said she avoided putting everyday expenses on credit after falling into debt in her early 20s and feeling the pain of repayment.

But her clients spent more when using credit, spurred by the I’ll-pay-it-off-later mindset, she said.

“Using a debit card, whereby you only spend your own money, helps you to not spend more than you earn and rack up a debt that costs your arm and leg in interest,” Ms Thomson said. “Who needs that added financial stress?”

More Time Financial cofounder Ross Marais said: “There is a big difference between choosing to use a credit card and needing to use a credit card.”

Choosing credit when you had enough cash in the bank for a payment was responsible, Mr Marais said.

But if your bank balance was too low to fund a purchase and you needed to put it on credit, you had a problem, he said. Mr Marais said credit cards could deliver perks such as points and insurance to cardholders who paid off their debt quickly and managed their money, and could also help a business smooth out cash flow. “Credit cards can be a fantastic and a great way to pay for things, if you use them correctly,” he said.

“If you don’t, they are the worst things in the world and should be avoided at all costs. “Debit cards are a lot safer way to pay for things and force you to be better with your money. I would say, for people who are not great at managing their money, debit cards are the clearer winner.”

moneysaverHQ.com.au