Debit Card Truths!
Maybe you are one of the millions of consumers who pull out your debit card for every retail transaction that you make. This process has become so popular that debit card transactions now exceed those of cash or check transactions in many countries. That is not to say that you should automatically join the ranks of those who do it! It just means that at the very least, you should know all the plusses and the minuses that go along with debit transactions.
Unlike credit cards which allow you to charge now and pay later, debit cards are uniquely designed to withdraw the appropriate funds from your designated account at the precise time of the transaction. Proponents of the kind of thinking that says “I am not buying anything unless the cash is already waiting to pay for it”, will swear by debit cards as the best thing since the invention of money. On the other hand, opponents of these transactions are quick to point out any one of a number of shortcomings of these cards.
With all that being said, here are the salient points of using debit cards:
- No need to carry cash or checks any more
- It is easier to obtain one than a credit card
- it is not based on your credit report
- peace of mind that your purchase is already paid for (assuming you are not overdrawn)
- universally accepted by most retailers, both on-line and in brick and mortar establishments
- no worries about late fees and interest rate charges found with credit cards
- you need to keep track of your purchases to prevent over-drawn fees
- there is little to no grace period for each transaction
- generally, they offer less fraud protection than credit cards
- they do not help you to build a credit record the way credit cards do
- contesting a transaction can be more difficult than with a credit card
- there are several fees attached that you must watch out for in order to avoid
- some merchants can temporarily tie up some funds that exceed your current purchase
While there may be more advantages and disadvantages of debit cards than are listed here, the important thing to note is that they are not the panacea that many people would have you believe. If you like the whole idea of debit cards and what they stand for, then at the very least, you should shop for a card with the least amount of fees attached to it.
Chris Borg is a practicing pharmacist and financial adviser who writes about health care and investing. Chris’s latest website on financial freedom is at RatraceBgone, where Chris provides financial tips such as the 9 steps to financial freedom: 9 Steps To Financial Freedom
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