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Debit Cards

It is so incredibly easy to swipe that shiny plastic card at the checkout, and go on with the rest of your day without giving your purchase a second thought. Then you move on to the next destination, and use your card once again. Do you actually take the time to record those purchases? Do you check them against your monthly bank statement? Many debt management issues can arise from careless debit card usage. Educating yourself now with all the facts can help you manage your debt wisely and budget more effectively. Being an informed consumer is the best defense to safeguard against mismanagement of your debt.

What is a Debit Card?

So, what exactly is a debit card? Debit cards are typically issued by large established credit card companies (like VisaT and MasterCardT) through their participating banks. A debit card uses funds already deposited into the user's account, as opposed to a credit card, in which funds are loaned to the user by a card issuer. When a consumer makes a purchase with a debit card, the funds are electronically transferred from the account holder's checking account to the merchant's bank account - almost instantaneously.

The Changing Face of Debit

It wasn't too long ago that debit cards could only be used for one purpose: to withdraw cash from an ATM (Automated Teller Machine). Today, debit cards are much more versatile and are designed to look and function just like a credit card. Debit cards can also be used to make purchases, both in stores and online. They are, in essence, an electronic version of a check.

Most banks today offer the following types of debit cards:

• Cards designed for ATM withdrawal only (PIN required)
• Cards designed for ATM withdrawals as well as purchases (signature required)

These types of debit cards vary from bank to bank and from consumer to consumer. Debit cards are also known by many different names, including: ATM card, check card and express checking card.

Debit Cards and Credit

It is generally easier for a consumer to be approved for a debit card than a credit card. This is because a debit card uses a consumer's own money, not borrowed funds.

All consumers want to know how they can establish a stronger credit record, including those who are on a debt management plan or who have sought the help of a consumer credit counseling service. Many do not realize that debit transactions are not reported to the credit bureaus, therefore cannot be used to build a stronger credit record.

Pros and Cons

Pros

Using a debit card can have its advantages. Keep in mind this only proves to be advantageous to those who are able to manage their debt and finances properly.

• Safer than using cash
• More convenient than writing checks
• More widely accepted than banks
• No interest accrues when you use it
• Easier to get approved for one than a credit card
• Requires very close attention to your spending habits

Cons

Since the role of debit cards has evolved over the past few years, it is important to be an informed consumer when dealing with debit cards and debt management.

• They are more susceptible to fraudulent use than credit cards because they do not require a signature. Be vigilant about who is handling your debit card every time it is taken out of your sight for a transaction.
• Debit cards do not carry the same protection as credit cards. A stolen debit card carries greater liability.
• No deferred payment option. Funds are withdrawn from an account real time.
• Debit purchases are not reported to the credit bureaus - cannot be used to build stronger credit.
• Fees associated with certain debit cards. (This varies from bank to bank. Can be on a monthly basis or on per transaction basis).
• Some businesses do not accept PIN-based debit cards.
• Some banks require a minimum amount available in your checking account.
• You have to pay very close attention to your spending habits!

Dealing with Inaccuracies and Legal Protection

Consumer credit counseling services advise to carefully review your bank statements monthly, if not more frequently. Naturally, you need to check for the accuracy of the transactions and compare it to your purchases and ATM withdrawals. If you happen to find an error on the bank statement, you have 60 days from the day you receive your statement to inform your bank and dispute the error. Your bank will then have only 10 business days to look into the issue and provide a resolution or to deposit the amount of money you are disputing until a final resolution is reached (up to 45 days).

If you are unfortunate enough to have your debit card stolen, you may have to deal with some unpleasant circumstances. Whoever has stolen your card could wipe out your entire account in no time. You may not even be aware of what has happened until you try to use your card and find that you have insufficient funds. By then you may already be liable for as much as $500. However, if you notify your bank within 48 hours of discovering that your debit card has been stolen and used unlawfully, you will only be liable for $50 under the Electronic Funds Transfer Act.

One way to help avoid this and subsequent debt management issues is to choose a PIN-based card. This way, a purchase can only be made is if a PIN is entered into the machine at the point of transaction.

What to do for help?

Being educated about all aspects of our financial matters is the key to a healthy financial life. Sometimes, we need a bit of help. For those of us who do not manage our debt responsibly, or who have had an unfortunate stroke of back luck with our debit accounts.

ClearPoint Financial Solutions, a certified consumer credit counseling service, is here to help. Our certified Financial Specialists can help you sort out your finances and make your debt manageable. If you are having a hard time paying your creditors, ClearPoint offers consumer credit counseling services to help you get back on the right financial track. Together we can discuss recommendations for managing your credit wisely and come up with viable solutions to your debt management issues.