Debit & Credit

Although these are two very similar words, they have completely opposite meanings:

• Debit - using money you already have in your current account to pay for things

• Credit - using someone else's money to pay for things, who you then owe money back to

If you are of a "debit" mindset, you would save up the required amount of money over time through your income to buy that thing you wanted.

If you are of a "credit" mindset, you would borrow from someone else (usually the bank) first, buy the thing you wanted, then pay back the person you borrowed that amount from, with some extra interest added on.

When you take the credit mindset, you owe money to an entity and the repayments should be added to your liability column on your balance sheet.

Having a debit mindset means that you don't have to worry about owing anyone anything but inflation may mean that the thing you wanted to buy may be more expensive in future, so you have to keep ahead of the inflation curve.

Incentives

In today's world, debit cards and credit cards have a range of different incentives, with cashback, points, loyalty rewards and buyer protection that it can be a headache to understand what is the best approach.

Of course, banks want you to have credit cards so that they can charge you extortionate interest rates if you don't pay off your credit card balance in full each month.

Therefore, if you can keep on top of your credit card spending and pay it off in full each month, this will help you maximise all the incentives, without being in debt to the bank and damaging your credit score.