Did you know that using a debit card instead of a credit card can help you save money?
If you are old enough to remember when debit cards didn’t exist you probably recall being at the grocery store with a cart full of food and household products and realizing that you had way overshot your mark. You could either write a check if you were confident that there were sufficient funds to cover it, pay cash or ask the checker to remove items. This meant an eye-rolling delay for the people in line behind you, but it had to be done. These days is it just much too easy to whip out a credit card to pay for items that you may not really be able to afford at that moment.
While credit cards have been around since the 1950’s, debit cards were introduced in the mid 1970’s. Debit cards are linked to your bank account so any money that you spend is automatically deducted and there is no interest or carrying charges. By using your debit card for your bills and daily expenses you will provide yourself almost immediately with an accurate snapshot of how much you spend each month and how much you don’t really need to spend each month.
So what are the pros and cons of using a debit card?
Advantages
They are a convenient alternative to checks for online shopping.
Many debit cards have a Visa or MasterCard logo and are accepted anywhere Visa and MasterCard are accepted.
It takes less time to complete a purchase because you don’t have to wait to get your check approved. Nor do you have to carry cash, a checkbook or travelers checks.
You stay in your budget because you can’t spend more money than you have. Note: Many banks offer “overdraft protection” that allows you to exceed your balance. But you’ll end up paying interest, and maybe extra fees, on the money you borrow from your overdraft account.
If you have dings on your credit history and can’t get a credit card at a favorable interest rate you will find that a debit card is much easier to obtain because it is tied directly to your bank account. With a debit card you have no interest charges.
Disadvantages
Disputed charges are harder to resolve. Unless you have a PIN-based direct debit card anyone can pick up the card and use it.
You may have bank fees such as a monthly or annual service charge, or penalties for dropping below your required minimum balance. Be sure to discuss all fees and charges with your bank.
A debit card does not improve your credit score since it is not a credit card and is not reported to the major credit reporting agencies.
If you are accustomed to user rewards, those will not be available with a debit card.
There are lower levels of fraud protection.
Liability
The maximum liability for a lost or stolen debit card is $50, but you must report it within 2 days of discovering your loss.
If you don’t to notify your bank of unauthorized charges within 60 days after you receive your bank statement, your liability is unlimited. You could lose all the money in your account. Check your bank statements carefully and promptly for charges you didn’t make. If you do report the fraudulent charges within 60 days after your statement was mailed to you your liability is limited to $500. Either way is very painful so make it a habit to check your statement each month.
Some major debit card issuers provide more protection. Some state laws cap your total loss at $50. Be sure to discuss these issues with your bank.
Safeguards
Use a debit card only when it is in your sight. Handheld electronic devices can be used to take your card information and make purchases before you realize anything has been done.
Don’t sign blank credit card slips for anyone.
Never loan a debit card to anyone.
Don’t carry your personal PIN number in your wallet, or on your person. Memorize it! If you can’t seem to remember the number that was issued with the card, ask your bank if you can change it to a commonly used one that you will remember. But avoid the temptation to use a PIN number that is easily figured out such as your birthday, last four digits of your social security number, house address, etc.
Keep debit card receipts and make sure everything matches up before destroying them.
Always, always, always sign your card when your receive it.
More Information
To do more research on your financial protections regarding credit cards and other critical financial matters visit the following two websites.
FTC.gov
Federal Reserve.gov
©THJ & Associates, LLC 2008
Theodore Henderson is a professional speaker and business person. However, he is not a speaker who uses “canned” presentations, but one who speaks from personal experience, business know-how, and from his heart on issues that resonate with a wide audience. He coaches using universal themes of financial education, faith, perseverance and self development.
Despite 20 plus years in sales and sales management in Fortune 500 companies, when it comes to public and professional speaking, he proudly considers himself first and foremost a Communicator and Entrepreneur.
He is a winner of Toastmaster International Speech Competitions and currently holds advanced Toastmasters certifications in speaking and leadership. He also conducts training and workshops in Business Planning and Personal Financial issues.
Theodore is an MBA graduate with concentrations in Finance and Information Systems and has consistently applied that knowledge throughout his career in technology and information systems. In addition to being certified as an instructor with the National Foundation for Teaching Entrepreneurship . He is the team leader for the Riverside Church Youth Entrepreneurial Development Program