Agency: Credit Counselling Service of Sault Ste. Marie & District

Topic: Debit Cards

Phone: 705-254-1424

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 Greg Elsby, Executive Director of the Credit Counselling Service of Sault Ste. Marie and District. "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."

Greg Elsby 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 five-fold in Canada since the national roll out of the service in 1994. Last year, Canadians chose the payment option more than one billion times ó up almost 50 percent from the previous year. In addition, the number of merchants offering debit card payment increased more than two and a half times between 1994 and 1997. Among the retail sectors showing the greatest increases during that period were beer, wine and liquor stores (11 times greater), gas stations (11 times) and the hospitality industry (10 times). In total, the dollars spent by Canadians through direct debit increased from $9.4 billion in 1994 to $44 billion in 1997.

"The rules for using debit cards wisely are much the same as for any other money management issue," says Greg Elsby. "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 Greg Elsby. "Itís just important that you keep in mind that although no cash actually changes hands, debit cards do mean you are paying now."

"Helping you get out and stay out of debt" is a series of articles provided by member agencies of the Ontario Association of Credit Counselling Services. All agencies provide a range of no or low cost services to help people solve their financial problems and improve their consumer and money management skills. For more information about credit counselling services in Sault Ste. Marie, please contact Credit Counselling Services of Sault Ste. Marie & District, 298 Queen Street East, Suite 2, Sault Ste. Marie, ON, P6A 1Y7 or visit our website at