The Debit Card Advantage

Many people believe the advantages of using a credit card outweigh those of using a debit card. Not so.

Although credit cards are convenient and provide lucrative rewards, they certainly don’t come without risk. Credit cards carry a huge risk of allowing the user to incur high interest debt. A new study by the personal finance website WalletHub reported that U.S. consumers’ total credit card debt exceeded $1 trillion in March of this year. Consumers took on an additional $92.2 billion in debt in 2017, leaving the average household owing $8,600 on credit cards.

According to Dave Ramsey, “America’s trusted voice on money,” consumers shouldn’t fool themselves into thinking that credit cards are the “safe” way to go. “They’ll get you into trouble and force you to make payments,” Ramsey says.

Using cash, although, the safest option when it comes to staying out of debt, doesn’t come without its disadvantages and risks. ATM fees, the risk of loss or theft, and the inconvenience of always having enough money in your wallet means that cash might not be the perfect choice, either.

Here are several advantages of using debit cards.

No Risk of Debt

Credit cards typically allow your spending to be capped at a credit limit, which can be thousands of dollars. When you use a credit card, you’re essentially borrowing money from the card issuer and agreeing to back it back at a later date. The problem occurs when the card user is purchasing something they can’t afford to pay cash for now, or, in many instances, when the bill comes due. Now the credit cardholder is subject to interest, typically at a double-digit rate.  A recent survey reported that the average APR for a new credit card is just short of 17 percent.

Debit cards solve this problem. Since a debit card is directly linked to your bank account, it provides a convenient way to purchase things without incurring debt. You can only spend what’s in your bank account. 

Ease of Tracking Cash Flow 

When using cash, the onus of accounting, so to speak, is on you. You have to manually track your spending either by holding onto every receipt or memorizing what you spend and logging it into your household expense spreadsheet.

Debit cards offer the solution to this. Cash is taken from your bank account today in near real-time when purchases occur. Then, by adding online banking into the mix, you have your up-to-date spending and account balances at your fingertips!

Ease of Acquiring and Maintaining 

An application and a decent credit history are required to obtain a credit card. Consequently, there’s always a chance of being rejected.

This is not the case with a debit card. Anyone that can open a bank account can get a debit card. In fact, today, debit cards are typically included when opening a new account. Even though some banks have added monthly fees to these accounts, there are still many free options out there.

With a debit card, you never have to deal with a monthly bill. You’re issued a monthly statement, via “snail” mail or online (paperless), to review and file away. A credit card requires you to pay a bill every month…and if you don’t make the payment on time, you’ll incur a late fee, a penalty interest rate, and possibly a ding on your credit report.

Eliminate Checks 

Checks can be the slowest way to conduct a transaction. When using a check, you have to wait for it to be deposited before the expense/purchase is reflected in your actual account balance. Unless you balance your checkbook regularly this can be an inconvenience and sometimes a problem…such as an overdraft.

With the swipe of your debit card, the money is taken directly from your checking account. There is no need to keep track of outstanding checks because your available balance is updated, in most cases immediately, with each purchase/payment.

Protection from Fraud and Theft 

Debit cards, unlike cash, offer increased protection in case your wallet is lost or stolen. Debit cards are backed by fraud protection if anyone tries to use your card.

It’s a myth that credit cards have a better track record when it comes to protection. Any debit card carrying the Visa or MasterCard logo has the same policy concerning unauthorized charges that a credit card has.

Today, many financial institutions have started offering additional protection, like the CardValet app, for both debit and credit cards. This app allows you to turn your debit card “off” if it’s lost or stolen. This safeguards against fraud because no purchases can be made/approved when the card is turned “off.” Once you find your card, you can easily turn it back “on” within the app. Many institutions suggest turning your card “off” anytime you’re not using it.

CardValet also alerts you immediately with a notification on your phone of any attempted use of your card. If your card is still “on” and there’s an unauthorized purchase, you can turn it “off” and prevent any further transactions from occurring. You can customize these alert notifications based on your spending habits, transactions and locations. The CardValet app not only offers protection against the fraudulent use of your debit card, it also provides a great way to help you stay on budget.

So, in a nutshell, when making purchases, take the middle ground with debit cards, and enjoy the many benefits over credit and cash.

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