Debit Card Do's And Don'ts Part II
The best way to do this is with a Debit Card tied to your bank account. Naturally, this comes with a bit of responsibility. Debit cards allow you to pay for items by automatically taking money out of your account and sending it to the creditor, so you are not incurring debt at all. Likewise, Visa, Mastercard, Discover, and American Express will not have the ability to charge you interest on the outstanding balance at the end of the month. So, that $5 coffee this morning from Starbucks doesn't wind up costing you $35 in an over the limit fee. This is where I ask my clients to analyze the true cost of things.
In other words, if I can't pay for this now, how much is this really going to cost me. Think of a car loan or a mortgage. How much is the interest going to cost me? I will use myself for example. I have purchased cars in the past, many of them. I like to pay cash unless I get a 0% interest deal. If I do, then I set aside the money in a separate money market account where I can earn a higher rate of return and now, I can keep my money in the bank, and give the car lender an automatic debit out of the account. So, I get to keep control of the account, earn interest, and build my credit rating.
If I cannot get a deal like that, I have to make a decision: Do I need the car that much that I am willing to pay cash? Do I want to pay cash? Do I have the cash to purchase the vehicle at this time? If not, how long will it take to accumulate the cash? Or, if I really need the vehicle, how much will it cost me to finance the vehicle? How fast can I pay that loan off? Again, what is this car really going to cost me, and am I willing to pay that amount for the convenience of having it now.
A Debit card really puts this into perspective. If the money is going to come out of your checking account now, then you really have to be careful that you not only have the money for the purchase, but enough to cover all of the other expenses associated with your budget. As Gene states in his article, misuse of the account may be reported to Chex Systems. An abuse of your debit card and checking account may prevent you from being able to open another account in the future.
One last caution, you will definitely want to create a cushion in your account. Hotels and Car Rental companies will put a hold on funds in the account for the estimated amount of the charges that you may incur during your use of their products. Always inquire if this is their company policy so that you will not overdraft.
All in all, Debit Cards serve a very useful purpose and are very convenient. In a perfect world, they would replace credit cards and all debt would be eliminated. However, being that we are not in a perfect world yet, consumers should look at all the benefits of having a debit card and look for more ways to use the debit card to reduce their reliance on credit cards.
This post is submitted by Carmen Dellutri, Esq of The Dellutri Law Group, P.A. Mr. Dellutri is one of the founding members of the Bankruptcy Law Network, Credit Law Network, Debt Law Network, and Mortgage Law Network. Additionally, Mr. Dellutri is on the Board of Directors of the American Board of Certification, and he is a Board Certified Consumer Bankruptcy Attorney.
