Debit vs Credit – Which is Best?

Featured Carry a Monthly Balance and Repay on Time Credit Card

The HSBC Credit Card is the perfect card for those who pay their credit card balance in full every month as it features a $0 annual fee for the life of the card plus 55 days interest free. This means it will effectively cost you nothing to use this credit card provided you always pay your credit card balance on time each month

• $0 annual fee
• 16.99% p.a. on purchases
• 0% p.a. for 6 months on balance transfers
• Cash Advance Rate of 20.75%
• Minimum income requirement of $20,000 to apply

Click here to read the HSBC Credit Card terms and conditions

Misconceptions and doubt can lead to consumers making the wrong decision when tossing up a debit or credit card.

The key features which need to be taken into consideration are:

• Personal Spending Habits: How consistently you spend on your card(s), as well as where you spend.

• Consistency in Repayments: In the long term, the amount of interest you accumulate makes a solid difference between the two credit card types.

• Average Annual Spend: How much you purchase on your card(s) per year also plays a significant factor.

By isolating four key credit card consumer groups, determining which form of card becomes much simpler.

The First Two Credit Card Consumer Categories

1. Carry a Monthly Balance and Repay on Time
2. Carry a Monthly Balance and Doesn’t Repay on Time

Belonging to either these groups can be a difficult choice. While most card holders claim they ‘can’t live without their credit card’ or ‘need it to get by’, only a fraction of these truly need to finance from credit cards to live day to day.

For Group #1, there’s no real reason to own a credit card if there is enough money in the bank to repay by the month (exceptions for inconsistent income payments and earning rewards).

For Group #2 and the rest adapting a frugal approach with some discipline will eventually clear your credit card debt.

I can’t get rid of it, what If I still need a credit card to buy something – like an online purchase?

Then debit is a good choice. If you believe you can get by without spending credit and paying interest, a debit has all the access you need without the urge to ’spend someones money’.

While debit or credit may not reduce the urge to impulse spend, at least what you purchase from a debit card will not accrue interest.

The Last Two Credit Card Consumer Categories

• 3. Spend Large, Carry No Monthly Balance, Uses Reward Program.

• 4. Spend Small, Carry No/Little Monthly Balance, Uses Reward Program.

Group #3 are the consumers who take full advantage of their credit cards.

If everyone belonged to this group, consumers with credit cards would ultimately become a detriment to banks, having to pay out more in rewards than receiving revenue from interest and fees.

If you can successfully own a credit card without every paying interest, spending a significant amount per annum on it, and repaying on time, then reward credit cards are the perfect option.

Group #4 often think they’re getting a good deal, but are oblivious that they are spending more in annual fees and occasionally interest than they are receiving in rewards.

For instance, what’s the point of paying a $120 annual fee and paying $50 of interest just to redeem a $100 gift card each year?

Since these consumers can afford to repay their non-existent or small balance each month, they shouldn’t have much of an issue switching to debit instead of credit.

Consumer Category Summary

1. Carry a Monthly Balance and Repay on Time – Switch to a rewards credit card. If you have no interest in managing a reward’s credit card, or don’t believe you spend enough per year to benefit, use debit.
2. Carry a Monthly Balance and Doesn’t Repay on Time – Switch to a low interest rate credit card (if you don’t already use one) if you truly need credit to finance your day to day expenses. If you think you can tighten up spending and live off only your own income, use debit.
3. Spend Large, Carry No Monthly Balance, Uses Reward Program – You can afford to repay your balance on time without fail, and spend enough on your card to rack up some seriously valuable reward points. See the reward credit card range here.
4. Spend Small, Carry No/Little Monthly Balance, Uses Reward Program. – Reward programs are of little use for you as more ends up being spent in interest and fees. Either swap to a no annual fee credit card or debit card.

Note that only four categories are used for comparison and suggestion in this article. There are countless types of consumers when it comes to credit card usage, and practically everybody is an individual when it comes to their person finance.

For more information and resources on debit vs credit, see our debit card guide.

For more information and resources on reward program credit cards, see our reward program guide.

• Comparison of Top 10 Credit Card Offers

Editor's Choice: Our Top Credit Cards

Credit Card	Card Details	Interest Rate (p.a.)	Cash Advance Rate (p.a.)	Balance Transfer Rate (p.a.)	Annual fee	Interest free days (up to)
HSBC Credit Card	Editor's Choice: 0% for 6 months Balance Transfer & No Annual Fee Featuring a $0 annual fee for life, and 0% p.a. balance transfer for 6 months, the HSBC Credit Card was voted the Best Transactor Credit Card for 2010.	16.99%	20.75%	0% for 6 months	$0	55
Suncorp Clear Options Standard Visa Card	A great 12 month balance transfer offer, combined with a low annual fee and a good interest rate on purchases.	12.24%	17.99%	1.9% for 12 months	$39	0