Does Debit Beat Credit?

The market for debit cards in Australia is certainly a growing one and it's no surprise. Until recently Australians could only access debit cards in the form of the local EFTPOS system. While this has high acceptance in retailers in Australia it cannot be used over the phone, online or overseas. With many banks now offering Visa debit cards with the same acceptance as Visa credit cards the debit card is back in fashion. Another reason for there rise in popularity is the desire to avoid debt due to the global economic slowdown.

Most debit style cards are associated with the major credit card brands. This type of card has the logo of the bank or issuer plus the Visa or Mastercard symbol and is called a scheme debit card. Thus consumers can find Visa debit cards as well as MasterCard debit cards. There are many major banks, credit unions and building societies that issue Visa debit branded cards while only a few banks issue MasterCard. Visa debit thus have the biggest market share by far in the debit cards Australia industry.

Debit cards work and look like credit cards. However, they do not provide a line of credit; instead they provide instant access to the cardholder's deposit account. The working principle is thus 'buy now, pay now' instead of 'buy now, pay later.' By using debit over credit Australia's consumers avoid falling into excessive — and expensive — credit card debt.

Here's how Visa debit and similar debit cards can help you avoid debt:

* The biggest advantage of debit cards from a financial perspective is that they do not attract any interest charges. Remember you are using your own money, not the card issuer's credit. It's possible to avoid expensive interest repayments if you pay for everyday items with a debit card.

* Another benefit derived from using debit is that they are not susceptible to the charges that make it expensive to credit cards, such as late payment fees, over-the-credit-limit fees, penalties, and other charges.

* Debit cards promote a kind of financial discipline. As the cardholder, the amount of spending possible on the debit card is limited to the amount of cash available in your deposit account.

* It could be argued that debit cards have higher security than credit cards as a PIN number is required for each payment.

On the other hand, there are some things to watch out for when using Visa debit and the like. These things don't have to lead to you going into debt but it could result in some red-faced moments if your card is declined or expensive fees on your account.

* Debit cards allow you to pay for items directly from the money in your deposit account as soon as you put the payment through.

* You may have more difficulty keeping track of the balance in your deposit account. If you put through too many debit transactions without keeping track of your account balance then you run the risk of going into an overdraft. That could subject you to penalty fees or even attract interest.

* The bank may charge a fee of around 12 cents for each transaction. This could build up if you use the debit card often.

* Unlike EFTPOS, Visa debit may be used online and overseas. However, there may be shopkeepers who refuse to accept debit cards because they prefer cash or EFTPOS. Moreover, pressing "CREDIT" after the debit card is swiped could cause the shopkeeper to impose a 2% surcharge. If you press "SAVINGS/CHEQUE" to avoid the surcharge, the bank may charge the transaction fee. Either way, you pay a bit more and you might forget to account for the deduction to your account.