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Will that be debit or credit?

By Anne Chun, C.A., CFP



It used to be " will that be cash or on your credit card" when you go through the cashier. With the introduction of debit cards, more and more Canadians are discovering the convenience of using the debit card. Should you use a debit or credit card?

Debit and credit cards look alike, and they are both issued by banks and trust companies. Transactions processed on debit cards are "posted" immediately meaning the money is taken out or debited from your account. On the other hand, transactions processed on credit cards are totaled and presented on a statement issued once a month. You have a number of days until the due date to pay the amount owing. This grace period is the "credit" you get for paying later.

Debit cards are widely promoted because cheques have to clear the banking system and requires staff time and processing costs. Currently , there is no cost to the consumer to use them, except for the transaction charges on the account so you save on the bank charges for cheques. For the merchant, there is an added level of safety because these transactions receive an authorization so there is no risk of a bounced cheque or the risk of theft in the case of cash.

Credit cards, on the other hand, allows your money to earn interest between the transaction date and the due date. Some people prefer to use the debit card because they do not have to keep track of the amount charged and also because they often do not pay off the balance. If you pay the balance, it is financially better to use credit cards.

Besides earning interest on your money, various credit cards have cooperative arrangements with other companies to cross-promote products. For example, using a certain gas company's credit card will accumulate points toward air travel.

With some planning, you can extend the use of your money to almost two months. To make the best use of your credit card, make note of the cut-off date or statement date. Try to time your purchases by charging them to your credit card just after the statement date. For example, if you make a purchase on July 14, it may appear on your July 15 statement, with the payment due on August 3. If instead you wait two days and make your purchase on July 16, it will appear on your August 15 statement, and payment is not due until September 3. If you have different credit cards with different statement dates, determine which card to use when you are making purchases based on the date. Try to pay off your credit card balance each month, as interest rates on credit card balances are usually very high.