Is It Actually Worth Getting A Debit Or Credit Card?

Debit Cards

Debit cards are linked to your everyday transaction account. When you use your debit card, you’re arranging for your bank to send the business or merchant your money based on the agreed purchase amount of the transaction.

Debit cards are also useful for withdrawing money at ATMs, and typically have low or no fees attached to complete the transaction or withdrawal in Australia.

The transaction will reduce the amount of available funds you have in your account at the time of the transaction. Once the transfer of funds has actually taken place, your account balance and your available funds will match again - but this can take a few days.

This is important because if you have arranged for any recurring automatic payments such as a bill, you’ll need to have enough available funds in your account, or you could end up overdrawing your account, which typically incurs a penalty.

Credit Cards

With debit cards, you’re using your money to buy things, but with credit cards, you’re borrowing money from the bank instead. A credit card is basically a pre-approved line of credit that you’ll have to pay back in the future.

You’ve probably seen or heard people talking about ‘maxing out’ their credit cards - which basically means that they’ve reached the limit of what the bank is willing to lend you based on the card you have.

Unlike debit cards, it’s not a good idea to withdraw money from an ATM using a credit card! The bank will typically charge you hefty fees or interest if you do from the day you withdraw the cash, so stick to the debit card if you’re in need of cash.

People usually use credit cards when they’re looking to make purchases that they’re confident they can pay off in the future. The bank will require you to make a payment every month based on what you’ve spent. You can choose to pay the minimum amount, pay it all off in full, or anywhere in between, but remember that the faster you pay off, the less interest you will end up paying - saving you money in the long run.

What about Buy Now, Pay Later (BNPL) services?

In the past few years, there have been online services which allow you to pay for things in instalments rather than all at once, often offering low or no interest rates at all. Much like credit cards, people use BNPL for things they may not have the money for at the moment but will be able to pay off later.

It can feel less serious than getting something like a credit card, but it still has a lot of the same risks. These services may charge fees for missing payments, or account-keeping fees that could represent a pretty hefty amount on top of whatever you’re buying.

Missing payments can also show up on things like credit reports, which are important down the line if you want to get loans like a mortgage.

It’s important to look at debit cards, credit cards and BNPL services as different tools that you have at your disposal, each with its own benefits and drawbacks.

At the end of the day, you’ll still have to pay for it all, so it’s important to budget properly and make sure you can manage the payments when they arrive.

If you’re interested in putting a budget together, saving up for that next big trip or just wanna wrap your head around using money in the big wide world, make sure you check out FinLit, our super-short course all about the money stuff they didn’t teach you in school.

BTW - If you’re having trouble with making credit card or BNPL service payments, you can call the National Debt Helpline on 1800 007 007. The helpline is open Monday to Friday, 9:30am to 4:30pm AEST.

The following content has been created by Year13 in conjunction with Westpac as part of a paid partnership. The information is general advice only, does not take into account your personal circumstances and you should do your own research and seek advice before acting on this content.