Sunday, November 2, 2008

Debit Cards - New Opportunities, New Dangers

Based on a recent article in Business Week, that I read on, Debit Card use is on the rise and credit card use may be on the decline. On the surface, that may sound great, but there is an undertow that is fraught with new dangers.

First, people still spend more with debit cards than with cash. Plastic numbs the pain of spending. It's kind of financial Novocaine. Banks and businesses are starting to discover the connection and are introducing 'perks' and 'incentives' for using debit cards. Alert! Danger Ahead! Caution! Cuidado! Open Manhole!

Secondly, debit cards create a fee bonanza for the banks. Because most Americans still don't budget and are poor record keepers, it's easy for Mr. Plastic to send the checking account into the red. No problem, your friendly bank honors the overdraft and hits your account almost immediately with an overdraft fee. So that $14 pizza ends up costing $43 after the service charge is added. I sure hope it was cheesy enough for you!

Mind you, I don't blame the banks for charging overdraft fees. They deserve to make money on loaning us money. Whether or not the rates are excessive, however, may be up for debtate.

Don't think that having 'overdraft protection' by linking your checking to a savings account will save you, because there are usually fees, either transactional or monthly connected with that service as well.

The correct answer is to BUDGET your finances and STICK TO THE BUDGET!

In the end, Debit Cards can be a blessing or a curse. I love mine. It makes things so easy at the gas station. It's great for shopping online, or paying bills that I can't do with other online bill pay. But for groceries, dining out and etc. Nothing works like cash!

Read the article HERE.