Posts Tagged ‘debit card’

Debit cards: Pros vs the Cons

Debit cards are useful in a lot of ways. For instance, a payday loan can be deposited into your bank account within hours of your online loan application being approved. It’s your money, spend it how you wish, whether it’s a cash withdrawal, personal check, or debit card. During this recession, many have begun using the latter more and more instead of making credit card purchases. Some are already familiar with the convenience of plastic, but may not know the pros and cons of debit cards.

Pros of debit cards

Debit cards can hamper impulse spending. They can’t eliminate this problem, but their use can curb it to some extent. Debit cards, unlike credit cards, will only cover purchases if the money to cover it is in the bank. A debit card is tied to cash, in that money is deducted (or debited) from your account after the transaction. This is unlike credit card spending, which allows a certain spending limit followed by installment payments to pay for charges later. A debt card lacks this feature. As a result, for most people, this means thinking twice before spending cash that will severely skew their budget.

Merchants that don’t accept personal checks are more inclined to take debit cards for transactions. This makes using debit cards as convenient as a credit card at the point of sale. Debit cards can be referred to as Visa check cards, and have the Visa logo, and others have the MasterCard logo. This means that wherever MasterCard or Visa is accepted, debit cards with the logo is accepted there as well.

The cons of using a debit card

Unlike what is offered with most major credit cards, cash advances or a line of credit is not offered to debit card holders. Therefore, when emergency cash is needed or when fast cash is needed to help a person survive until their next paycheck, a debit card is of no help. However, a person in this situation, even with bad credit, may be able to consider a loan till payday or a cash advance from a company offering personal loans.

Federal regulations, which protect credit card consumers, do not apply to debit cards. This means that in a dispute over charges, the consumer has little recourse once money has been debited from their account.

Banks that issue debit cards with checking account sometimes assess fees when the cards are used. While this practice is becoming more and more obsolete, consumers are advised to check with their individual bank before using debit cards and accruing possible fees. Be sure to ask about using the card to get cash from other banks or ATM machines. Some don’t impose fees on transactions, but it’s common for banks to charge when a card is used at another bank or a private ATM machine.

A debit card that gets lost or stolen can be quite costly, depending on the state you live in and when it goes missing. While very limited protection may be offered, consumers should be aware of their level of protection ahead of time. For instance, if someone does not report their card missing within 48 hours of a thief taking it, it is possible for the original card holder to be left with some or all of the liability on purchases and cash withdrawals made by the thief. The liability depends on the bank’s policies and state laws governing such limits.

While debit cards definitely come with advantages, such as providing immediate access to cash advance or personal loan deposits, the drawbacks involved with using them can be costly if a person is not very careful. Overall, however, they offer freedom from high interest rates while offering many of the same conveniences as a credit card. Debit cards don’t help you build credit, but they also don’t have the risk of damaging credit as credit cards do.

Cash only money management

A recent CNN Money article highlighted people from all over the USA who have switched to cash only transactions to better manage finances. William Hazelgrove, from St. Charles, IL., is tired of mortgage loans, auto loans, unsecured loans and debt. He isn’t alone in his sentiment – but unlike a lot of people, he’s doing something about it. In the past Hazelgrove and his family dealt with credit much like most people did. When he received bills, he’d pay them with his credit card. It wasn’t until the credit card company egregiously raised the interest rates due to the recession when he realized the problem. “I realized if I ever wanted to live within my means, I would have to switch to using cash only.”
Hazelgrove took charge of his finances, and steadily paid off debt and increased savings. He got a second job, and put the funds right into both. His complete solution included:

• Keeping a debit card balance above $100
• Liquid savings of $5,000 for emergencies
• Using Quicken to keep track of every expense

One of the main commitments he had to subscribe to was not spending when cash was low. He said, “It was hard, especially towards the end of the month, but I had to forego credit card spending. If I couldn’t afford it, then it had to wait.” It was difficult, he admitted, but now his goals are all realized. Living without using a lot of credit isn’t exactly a bad idea.

Statistics on credit

When it comes to credit, almost everyone has it. A recent study by Hoffman & Brinker revealed that Americans totaled up to $ 917 billion in credit debt by September 2009. Almost 70 percent of that credit debt is past due.

It’s not exactly classified information that a lot of people used too much credit, and the truth is that lenders changed rules in terms of lending and limits. Without an action plan, many Americans will find themselves at a difficult juncture in their finances. Mortgage loans, car loans and unsecured loans are no longer given out to just any applicant. Prior to the recession lending laws were lax. It was easy to get funding and almost every credit-scored applicant could find some lender to extend money. Granted, that money often came with a hefty interest rates, but many people were willing to pay the price.

Today’s world of cash management

The lending crash had the biggest effect on people going cash-only. Because of the huge number of defaulting borrowers, credit card companies decided to take drastic action in an effort to mitigate their losses. They raised their interest rates to where they were unmanageable, and then cut limits. One consumer, Daphne Harringe of Cincinnati, Ohio, said, “We always used credit to manage our monthly bills. Always. Then suddenly our interest rate shot up to 27 percent after one delinquency. It was difficult to manage, but we realized that we had to switch to cash if we were going to save our future.”

More and more consumers are heading towards a cash-based money management system. In particular because of the way credit lenders handled the recession, borrowers realized how unreliable credit can be. More consumers are moving away from funding methods like credit cards, mortgage loans, and unsecured loans. They are opting to use cash instead of credit, and take their future in their own hands.

If you want to escape the debt trap for once and for all then a Visa debit cards might be the answer for you. Unlike a credit card there is no option to borrow money on a debit card so you can be guaranteed that you will live within your means and not build up heavy debts on your card.

One of the biggest differences between debit and credit cards is that with a debit card the money your spend is taken direct from your bank account. So you don’t run out of funds, relying on a debit card makes you keep track of your spending as you go and adjust your spending habits. With credit cards you can spend anywhere up to your credit limit without penalty, potentially racking up significant debts.

There are several key advantages of debit cards. The biggest benefit has to be using your debit card to handle your spending without falling into debt or getting shocked by monthly bills you can’t afford to repay. What is more, you are not limited in where or how you shop as you can use a Visa debit card anywhere you see the Visa logo. Of course, you can also withdraw money straight from an ATM, without incurring the cash advance fees associated with credit cards.

Another big plus with debit cards is that they are so easy to get. You don’t have to worry about lengthy application forms or your credit rating. Most of the banks have seriously tightened up their lending criteria for credit cards so debit cards are a great option.

Visa debit still has all the positive advantages of a credit card but without the risk of getting into debt. For example, you can use a Visa debit card overseas, just as you can with Visa credit cards. You can also make purchases online or over the phone, all while keeping a rein on your spending.

While debit cards are a great way to avoid debt, they are not without their disadvantages. One potential pitfall of debit cards is overdrawing on your account. They are not designed as a source of credit and the fees for overdrawing can be expensive, so you need to make sure that you stay within your budget.

When choosing a debit card you need to take time to compare the features of the bank account the card comes with. Although there may be no interest charges you need to look at any other fees and charges associated with the banking account your debit card will come with.

Another common criticism of debit cards is that they do not offer the same consumer protection as credit cards. The usual argument on this would be to say you have a much better chance of demanding a refund or avoiding paying the costs of fraudulent use with a credit card.

While they are not perfect the advantages of debit cards far outweighs any negatives. Visa debit cards are easy to get, inexpensive if properly used and a great way to avoid debt.