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Help with loansDebit or credit? How to pick the best card for you
Whether you’re shopping online, paying for day-to-day expenses or ordering digitally when eating out, getting by without a debit or credit card can be challenging these days.
Debit cards have soared in popularity in recent years. There are now almost 38 million of them in circulation in Australia and each one is used 23 times a month, on average, according to 2022 research by Finder.
While there are fewer credit cards in Australia, usage is almost as high: the 13 million odd cards in circulation are used on average 22 times a month.
So, what are the key differences between the two types of cards and how can you decide which one is right for you?
Debit cards explained
A debit card is linked to your savings or cheque account. You can use it to make purchases and withdraw money using the funds in your account. Debit cards are usually free and you won’t pay any interest or fees on the money you spend - unless your account becomes overdrawn or you’re charged an account-keeping fee for the bank account your card is attached to.
Credit cards explained
A credit card is a payment tool that provides individuals a line of credit. It allows you to make payments and access funds, up to a credit limit that’s been approved by your bank or financial institution. Most credit cards have an interest free period of up to 55 days. You’ll receive a credit card statement from your bank or institution each month with a minimum monthly repayment - the minimum amount you need to repay without being charged overdue fees. If you don’t pay your closing balance in full by the due date, you’ll be charged interest on the amount owing.
Some card providers like Citi also give you the option to pay for large purchases in monthly instalments over a fixed period of time, at a reduced interest rate.
Many credit cards come with an annual fee. And if you withdraw money from your credit card account, you may be charged a cash advance fee and have to pay interest immediately on the sum you’ve withdrawn.
Assessing your options
Your spending habits, attitude to money and ability to make regular repayments will all help you determine which card best meets your needs.
Debit cards tend to appeal to customers who like to keep tight control over their budgets, according to Choong Yu Lum, Executive, Cards and Unsecured Lending Citi Consumer Division.
“They’re a convenient purchasing tool for people who want to keep on top their finances and are worried about being charged interest”.
Enjoying the rewards
If you’re a responsible user of credit and have a regular income, or the capacity to make repayments, a credit card can provide a number of benefits.
They include rewards, in the form of points, for the money you spend on your card. Citi reward Points, for example, can be used to pay for eligible purchases at Kogan.com or it can be transferred to an airline loyalty program. If you use your card frequently, your points can soon add up, helping you reduce the cost of travel or major purchases.
Your credit card can also provide you with immediate access to funds beyond what you have in any bank accounts, should unexpected expenses arise.
“You never know when you might need some extra cash flow, to cover a major purchase, or a medical procedure, for example,” Lum says.
“Having a credit card can mean you don’t have the hassle of applying for a loan or rushing to raise the money in another way. Your card can be there on standby for when you need it, in an emergency. In today’s uncertain times, it’s good to have that peace of mind.”
Secure payments
Whether you opt for a debit or a credit card, you’ll enjoy the added protection that paying by card provides. Australia’s banks have sophisticated fraud monitoring programs and consumer safeguards in place. That means transacting with your debit or credit card is generally a safer option than transferring cash to individuals or businesses you do not know.
Whether you’re shopping online, paying for day-to-day expenses or ordering digitally when eating out, getting by without a debit or credit card can be challenging these days.
Debit cards have soared in popularity in recent years. There are now almost 38 million of them in circulation in Australia and each one is used 23 times a month, on average, according to 2022 research by Finder.
While there are fewer credit cards in Australia, usage is almost as high: the 13 million odd cards in circulation are used on average 22 times a month.
So, what are the key differences between the two types of cards and how can you decide which one is right for you?
Debit cards explained
A debit card is linked to your savings or cheque account. You can use it to make purchases and withdraw money using the funds in your account. Debit cards are usually free and you won’t pay any interest or fees on the money you spend - unless your account becomes overdrawn or you’re charged an account-keeping fee for the bank account your card is attached to.
Credit cards explained
A credit card is a payment tool that provides individuals a line of credit. It allows you to make payments and access funds, up to a credit limit that’s been approved by your bank or financial institution. Most credit cards have an interest free period of up to 55 days. You’ll receive a credit card statement from your bank or institution each month with a minimum monthly repayment - the minimum amount you need to repay without being charged overdue fees. If you don’t pay your closing balance in full by the due date, you’ll be charged interest on the amount owing.
Some card providers like Citi also give you the option to pay for large purchases in monthly instalments over a fixed period of time, at a reduced interest rate.
Many credit cards come with an annual fee. And if you withdraw money from your credit card account, you may be charged a cash advance fee and have to pay interest immediately on the sum you’ve withdrawn.
Assessing your options
Your spending habits, attitude to money and ability to make regular repayments will all help you determine which card best meets your needs.
Debit cards tend to appeal to customers who like to keep tight control over their budgets, according to Choong Yu Lum, Executive, Cards and Unsecured Lending Citi Consumer Division.
“They’re a convenient purchasing tool for people who want to keep on top their finances and are worried about being charged interest”.
Enjoying the rewards
If you’re a responsible user of credit and have a regular income, or the capacity to make repayments, a credit card can provide a number of benefits.
They include rewards, in the form of points, for the money you spend on your card. Citi reward Points, for example, can be used to pay for eligible purchases at Kogan.com or it can be transferred to an airline loyalty program. If you use your card frequently, your points can soon add up, helping you reduce the cost of travel or major purchases.
Your credit card can also provide you with immediate access to funds beyond what you have in any bank accounts, should unexpected expenses arise.
“You never know when you might need some extra cash flow, to cover a major purchase, or a medical procedure, for example,” Lum says.
“Having a credit card can mean you don’t have the hassle of applying for a loan or rushing to raise the money in another way. Your card can be there on standby for when you need it, in an emergency. In today’s uncertain times, it’s good to have that peace of mind.”
Secure payments
Whether you opt for a debit or a credit card, you’ll enjoy the added protection that paying by card provides. Australia’s banks have sophisticated fraud monitoring programs and consumer safeguards in place. That means transacting with your debit or credit card is generally a safer option than transferring cash to individuals or businesses you do not know.