Credit Counseling with
the Sudbury Community Service Centre
Credit versus Debit Cards:
Make Sure You Understand the Difference
For many consumers, the debit card is one of the best new products
of the decade. Providing the convenience of both cash and credit,
but without the risks of loss and interest charges, it can be a
great alternative — when used appropriately. It isn’t just the
service charges that may be attached to each debit transaction that
you need to keep in mind. Understanding the difference between a
credit card and a debit card can help consumers avoid potential
problems.
"The debit card may, at first, seem like a welcome alternative to
credit, because it doesn’t carry mounting interest charges," says
Linda Morel, Executive Director of the Sudbury Community Service
Centre. "The potential danger of using your debit card is that it
immediately decreases the actual cash you have available to pay
ongoing expenses. Unless you are carefully keeping track of your
bank balance, it can quickly and easily be depleted. Remember, using
a debit card has an immediate effect on your cash flow."
Ms. Morel says that those who use their debit cards without keeping
track of the cash leaving their bank account, may quickly find
themselves without funds for day-to-day cash expenses like rent,
transportation or food. "That in turn may lead them to using — and
starting to depend on — credit to cover items for which they would
normally have paid cash."
Statistics recently released by the Interac Association showed that
use of the direct debit card has increased dramatically in Canada
since the national roll out of the service in 1994. Last year,
Canadians chose the payment option more than two billion times — up
over 100 percent from 1997. In addition, the number of merchants
offering debit card payment increased from 310,946 in 2000 to
350,128 in 2002. Among the retail sectors showing the greatest
increases during that period were beer, wine and liquor stores, gas
stations, supermarkets and the hospitality industry. In total, the
dollars spent by Canadians through direct debit increased from $85.2
billion in 2000 to $104.9 billion in 2002.
"The rules for using debit cards wisely are much the same as for any
other money management issue," says Linda Morel. "The most important
of those rules is to make a budget and stick to it. When you keep in
mind and adhere to how much you have to spend, then it may make
sense to take advantage of the convenience and security of a debit
card as a substitute for cash." Since an important part of good
budgeting is good record keeping, another important tip to managing
your debit card use is to record how much you spend every time you
use your debit card, so that you stay well aware of your true cash
on hand. That’s often easier to remember when you’re writing a
cheque than when your transaction is totally electronic. Also, be
well aware of any service charges your financial institution applies
to direct debit transactions and factor them into your budget
"Debit cards can offer many advantages to consumers over cash,
credit and cheques" says Ms. Morel. "It’s just important that you
keep in mind that although no cash actually changes hands, debit
cards do mean you are paying now."
For more information contact the Sudbury Community Service Centre at
(705) 560-0430 or 1-800-685-1521.
