The advantages and disadvantages of credit card and debit card use

The advantages and disadvantages of credit card and debit card use

Credit and debit cards are the handy alternative to not having to carry cash. We live in a world where most outlets will accept payment by numerous different methods. Often, it’s enough to simply wave our cards or phone over the payment terminal and carry on our way without a thought.

But if you did stop to think about how you might be able to better manage your spending by understanding the pros on cons of each of them it could well help you in avoiding the pitfalls of overspending and poor financial health.

Credit cards

There are many benefits to carrying a credit card. They will often come with additional benefits than just the convenience of the simple payment transaction or that you can utilise money we haven’t earned yet. Many will include free insurance for the purchases we make with them—incredibly handy if they cover your holiday insurance, which can offer big savings when travelling internationally.

Advantages of credit card use

Free credit

If you spend with discipline and live within your means then a credit card can offer you up to 42 days free credit. Very handy if you’re facing an unexpected emergency and you know your spend will be covered by your next payday.

Regular incentives

Plenty of credit card companies will offer incentives to come on board with them instead of their competitors. Cashback is popular, as are air miles. We love getting anything for free so as long as you manage your repayments sensibly then it’s something of value to take advantage of.

If you lose your card—all is not lost after all

If you lose your credit card you can put a stop on it right away and prevent any unwanted spending at your cost. You can’t do that with cash. If you happen to lose cash it’s very unlikely you’ll ever see it again. Especially if your wallet or purse was stolen as opposed to simply being misplaced.

Disadvantages of credit card use

It’s not free money

There is a tendency for spending on credit to feel like you’re not spending your own money at all. This gives way to impulse buying and a possible spiral into debt problems. With added interest spending can easily turn out to be much more costly than the price of the original spend, especially if the repayments are a little too much to wipe out when you receive your statement and keep rolling over month after month.

Not all cards are created equal

If you don’t read the small print or haven’t done the research then it’s possible that the costs incurred could well be much higher than you expected. Interest rates will vary from card to card and also can depend on your own credit score in specific applications.

Read the small print

UK law regarding credit cards is quite particular. If a card is used to withdraw cash from an ATM without your consent it’s up to you to prove that the action was fraudulent which can be particularly difficult. Failure to report a lost or stolen credit card will violate any protection or insurance you may have held with the card. This can lead to huge expense and in turn a possible debt problem that could be very difficult to climb out of.

It makes cash more expensive

If you use your credit card to withdraw cash from an ATM then more often than not it comes with additional charges. In effect, that makes the cash worth less than the money in your hand.

The credit card juggle

If you find yourself in the situation where you can’t meet your repayments then many spenders will utilise a second credit card to pay off the first one. It’s just double the trouble. There are better ways to handle your debt—find the best one for your situation and lose the second card as soon as you can.

Debit cards

The difference between your credit and debit cards is that your debit card uses money you already have; this makes it much more like using regular cash yet they still have their pros and cons.

Advantages of debit card use

How handy?

Fabulously handy, a debit card works like a cheque without the trouble of having to write it out (does anyone even carry a chequebook anymore?), or like cash without the problems of having to fit a visit to the bank or ATM before making your purchase. There is the added level of safety of not having to worry about losing your chequebook or the alternative amount of cash. Having said that, you’ll need to make sure you keep your card safe at all times instead.

Easy to obtain and easy to use

Given that anyone with a bank account should automatically be given a debit card it means that they’re easy to acquire. The convenience of carrying a debit card over carrying cash is great, especially now with contactless payments.

Disadvantages of debit card use

Spent is spent

With a debit card once you’ve paid for your transaction that money is removed from your bank account as soon as the action has been processed. An impulse buy may leave you without enough reserves to cover important bills or necessary purchases.

Less protection from fraud

Many banks and financial service providers do try to offer reasonable protection for their customers but often are less easily protected than the rules pertaining to credit cards.

Contactless crime

There has been an introduction of a new type of digital pickpocket since the initiation of contactless payments. These thieves are collecting payments by passing a portable payment terminal past wallets and bags and collecting smaller amounts from the bank accounts of their unsuspecting victims.

Whichever way you choose to spend, be careful

With so many ways to make purchases and the lure of a world full of must have products and material wants it’s easy to let our spending get out of hand, and quite often by accident. So however you choose to buy goods and services make sure you can afford it—nobody wants to find themself in a financial nightmare they’re going to struggle to get out of.

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