Choosing To Use A Debit Card For Personal Money Management
Tuesday, July 1st, 2008 Subscribe To Our Feed
Debit cards are secured by your bank account. They are generally issued to people that open or have a checking account. After that they pretty much work like an ordinary credit card. The main advantage of a debit card is that your credit is limited to the amount in your bank account. This is a good check and balance for people that find it hard to control their credit card spending. It can prevent people getting into serious credit card debt. The downside of course is that the card will not work if your account is empty or has reached a certain cut off point. This article will examine the pros and cons of debit cards for personal money managment, especially when dealing with credit card debt.
So a debit card generally has a visa or mastercard logo on it to denote that it can be used as a credit card. It also doubles as your card to use at an ATM. A Debit card can be used as if it was a credit card. The credit limit is generally set to a certain amount or is limited by the amount of funds in the bank account linked to the card.
There are no fees attached to getting a debit card. There are no penalties or increased interest payments if you fail to pay off a monthly debt because the money is debited from your account immediately.
So a major benefit with the debit card is that it gives a person the convenience of using plastic rather than carrying a wallet full of cash around. For many purchases these days, paying via a card is the preferred method too.
Apart from the convenience, a debit card teaches a person to manage their money. They cannot simply buy and buy and worry about the consequences when they received their credit card statement in the mail. If they do not have the funds in their bank account, the debit card will fail. This is a very public failure as it is often in front of a sales assistant or clerk and maybe a few people waiting behind in the queue.
If this happens once, it is generally a good enough lesson for them to avoid this happening again. And even if this does not serve as a lesson, the debit card ceases to work until the funds are made available in the account.
Now that we know how a debit card functions, here is a word of warning. Debit cards are a smart choice if they are handled with care. Pitfalls do exist and a debit card user can fall victim if they are not careful.
Since they are tied to a checking account, transactions need to be recorded in a ledger or a computer program. The enemy of the debit card is the ATM machine. It really does seem like a genie in a box. You put a card in and push some numbers and money spits out at you.
Just as quickly as that money was deposited in your account it can disappear if you are not careful. The checking account can become overdrawn without ever bouncing a check. ATM receipts can be deceiving, because they don’t always reflect the true current balance in the account if other transactions haven’t cleared the bank.
Debit cards are also subject to “blocking” just like a credit card. This means that some merchants can block off a set amount of money in the account until your transaction with them is processed. Case in point: using a debit card to pay for a $20 visit to the gas station, but the store blocks off $50 on the card. If the extra $30 was earmarked for something else, you will run into problems until that block is removed.
Choosing to use a debit card makes good sense if you have problems with money management. It forces you to think about how much money you can afford and how much money you have in your bank account before using it. This contrasts to a credit card that allows you to indulge an impulse buy or any other buying decision, only to regret it later. However, you should understand how a debit card works, especially if you issue plenty of checks.
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