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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 ó when used appropriately. It isnít 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 doesnít 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 ó and starting to depend on ó 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 ó 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. Thatís often easier to remember when youíre 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. "Itís 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.

 

 

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