Finance Literacy

Debit cards are associated with checking accounts. Consumers can use them as credit cards if they contain a Visa or MasterCard logo on them. They don’t incur fees like a credit card does because they are backed by the amount of money in the account. With that said, are debit cards as good a choice as they seem?

Debit cards are issued when a checking account is opened if the customer elects to do so. Debit cards give the illusion of a credit card, without the fees and penalties that go along with failure to pay or late payments. They make it easier to purchase items in stores or restaurants. We’ve all seen those commercials where everyone in the shop pays with plastic and things run smoothly. Then, that one person comes along that puts a monkey wrench in the machine with a handful of cash.

If an individual has had difficulties using credit cards responsibly, debit cards can help them learn to handle their finances better. Instead of carrying checks or cash, debit cards are heralded as the new plastic money. Since they can only draw from the funds already present in a checking account, they are considered to be safe too.

The above mentioned functions of debit cards make them seem easy to use and safe, which they can be. Be warned, however, that there are risks associated with the misuse of debit cards.

In order to balance your checking account, all purchases made with a debit card should be recorded. ATM’s, a modern marvel of convenience, can be a huge source of problems for a debit card user since they offer instant cash.

Just as quickly as that money was deposited in your account it can disappear if you are not careful. The checking account can become overdrawn without ever bouncing a check. ATM receipts can be deceiving, because they don’t always reflect the true current balance in the account if other transactions haven’t cleared the bank.

Debit cards are also subject to “blocking” just like a credit card. This means that some merchants can block off a set amount of money in the account until your transaction with them is processed. Case in point: using a debit card to pay for a $20 visit to the gas station, but the store blocks off $50 on the card. If the extra $30 was earmarked for something else, you will run into problems until that block is removed.

If you are able to handle your money well and make responsible choices when it comes to spending, a debit card can be great tool. The misuse of these cards, however, can cause problems, including a checking account with a balance that dips down into the red.