Debit versus credit
Debit
Your bank account comes with a debit card which allows you to withdraw money from cash machines and pay for items in shops and online.
Your debit card uses money that is currently in your account. The money for your purchases is debited (taken out of your account) immediately or on the next working day.
With a debit payment, you are not borrowing money to pay for the item.
Advantages and disadvantages of debit:
| Advantages | Disadvantages |
| No need to carry cash | Need to have money in account |
| Shop online or on the phone | Can accidently overspend and enter into an overdraft |
| No debt | Fraudsters may steal and use your card |
| Advantages | No need to carry cash |
|---|---|
| Disadvantages | Need to have money in account |
| Advantages | Shop online or on the phone |
|---|---|
| Disadvantages | Can accidently overspend and enter into an overdraft |
| Advantages | No debt |
|---|---|
| Disadvantages | Fraudsters may steal and use your card |
Credit
Credit is a 鈥榖uy now, pay later鈥 option. A credit card allows you to pay for goods by borrowing money from the credit card provider.
The credit card provider will charge you interest to do so. The rate of interest is called an APR, or annual percentage rate.
If the APR is 18%, and you spend 拢100, you would pay back 拢118 after a year.
The quicker you pay off your credit card, the less interest you will need to pay.
Advantages and disadvantages of credit:
| Advantages | Disadvantages |
| No need to carry cash | It will take time to pay off the debt |
| Shop online or on the phone | Interest rates may be high |
| Buy what you need, when you need it | Missing a payment may affect your credit rating |
| Pay for things in instalments, rather than all at once | Fraudsters may steal and use your card |
| Advantages | No need to carry cash |
|---|---|
| Disadvantages | It will take time to pay off the debt |
| Advantages | Shop online or on the phone |
|---|---|
| Disadvantages | Interest rates may be high |
| Advantages | Buy what you need, when you need it |
|---|---|
| Disadvantages | Missing a payment may affect your credit rating |
| Advantages | Pay for things in instalments, rather than all at once |
|---|---|
| Disadvantages | Fraudsters may steal and use your card |