Debit Card Guide:

We all use them but do banks win or lose when this happens? Are debit cards the right way to buy things or should we use cash or VISA cards? ATM cards used to be only for ATM machines until all types of stores started accepting debit cards as a form of payment. A debit card is built right into your banks ATM card. When you buy things at stores they usually ask if you are going to pay for it with Debit or Credit. What is the difference and how does it effect you? Debit cards are linked to your banks checking account and the funds are taken directly out when you pay for things using the card. If you have a problem with not paying your credit card bills at the end of the month, financial managers advise you to switch over to using cash or your debit card. You can only spend what is in your checking account when paying for things with your debit card. That is not totally true as you can be charged overdraft fees when your checking account runs dry but you still use your debit card. Some banks won't allow you to continue spending when the funds dry up while others don't care and simply add on an overdraft protection fee to your monthly statement.

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Banks are pushing debit cards to all their customers since banks make money when you use your debit card to pay for goods. The store has to give the bank a fee for processing the debit card much like your VISA card company takes a % of the sale when you use that to buy things. Consumers pay billions each year in overdraft fees based on withdrawals made by the debit cards they use. Some wise consumers think they will avoid high interest rates on credit cards and use their debit cards instead only to find that their checking account was light on funds and they end up paying a $30 fee. Check with your bank to determine just how your debit card functions, how it is protected if you have insufficient funds in your checking account to cover the expense, and how you can avoid those overdraft fees. Americans are a "buy now pay for it later" society which gets most of them into financial problems down the road. The best way to avoid high credit card bills and interest rates is to use cash or a debit card. Just be careful that you don't spend more than the funds available in your checking account. With online access to your checking account, be sure to check it often to make sure there is plenty of money to cover your debit card use.

Prepaid Debit Card:

If you want to teach your teenager or young college student about the facts of life in terms of money, financial experts suggest getting them a prepaid debit card. You can setup an account that gives them access to it via a debit card. Deposit a certain amount into that account each month so that they can draw upon the funds when purchasing things. Once the account runs out they can no longer use the debit card again until the account has more money deposited into it. I know several of my friends that could have used a tool like this growing up. Prepaid debit cards are an excellent way to teach your kids about financial responsibility and only being able to buy things that you can actually afford. Most banks will allow you to open an account for your child and have a prepaid debit card. Your child will learn how to make money stretch over a month and understand the idea behind a budget. There are also prepaid credit card accounts that offer similar features. You may also hear prepaid debit cards referred to as "reloadable".

Debit Card vs VISA Card:

We've already discussed this issue above, but to reiterate, sometimes it's better to use your VISA card and other times it's ok to pay using a debit card. Most VISA cards have better reward programs built into them so you accrue points for airline miles or other rewards. VISA cards have much better buyer protection when you need to dispute a purchase. Also, credit card companies offer superior fraud protection programs compared to those from banks and debit cards. Ideally you have cash sitting in your bank account earning interest each month and then you use your VISA or credit card to charge your bills throughout the month and then pay it off. The problem is that some people are terrible money managers and can't balance their checkbook or understand how finance charges accrue over time. There is a direct relation between high credit scores (FICO) and those that handle credit cards well versus those that use debit cards and avoid credit issues. There really is no true benefit to using a debit card except that you will only be spending what you have in your bank account which is a financially responsible way to lead your life. If you are going to use a debit card as your main source of payment, make sure it's linked to your savings account for overdraft protection and save yourself from unnecessary bank fees.

Payroll Debit Cards:

Some companies are paying their employees with a debit card, similar to a gift card you might receive at Christmas time. The payroll debit card has a certain amount of funds associated with it and many younger employees or those without a bank account like the idea. I read an article about how Wendy's restaurants were paying some employees with payroll debit cards. This way the people don't have to go and pay check cashing fees or worry about having a bank account that might force to keep a minimum amount in their account. You can use the payroll debit card to get money at ATM's or use it to pay for groceries at a store. You can check the amount still on the card 24 hours a day by calling a phone # or checking online in some situations. I'm glad to see some companies acting on behalf of their employees so that these check cashing stores don't make a killing on these poor people by charging exorbitant fees just to cash a check.

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