The 3 Main Advantages of a Debit Card
Are there advantages of a debit card that makes them better than using a credit card?
Debate rages sometimes in the personal finance world over which one of these payment options is better. I see how both can be used responsibly to assist people with their money management. The key word in that last sentence though was “responsibly.” Of these two options, credit cards by far have the most potential for abuse.
Advantages of a Debit Card
Banks and other financial institutions issue debit cards as a way for customers to access their accounts to pay for goods and services. The card links to your checking account at the bank. When you swipe it at a business, the amount of the transaction is withdrawn from your account to pay the merchant.
The transaction immediately shows up in your bank’s account register and begins the process of being or cleared. You do not go into debt for the purchase or have to wait for the transaction to be billed on a credit card statement. You don’t have to wonder during the month about how much you have or haven’t spent. It’s all recorded in your bank register which you can easily see with access to online banking.
This immediacy of transaction forced me to monitor my accounts in real time – day after day. Much like a restrictor plate limits the power of a race car and how fast it can go, a debit card limits the speed at which I can spend money. It forced me to slow down and pay attention to how much money was in my bank account. In essence, the debit card limited the potential damage I could do to myself.
This is one of the biggest advantages of a debit card
As I slowed down my spending and paid more attention to our bank account, discipline was developing in my life. The bad habits of excess spending were gradually being replaced by patience, delayed gratification and frugality.
As these character qualities became more and more pronounced, I noticed two other changes occurring:
1) We began to stay within our budget every month and…
2) We began to save more.
Both of these changes were huge revelations for me. My reckless spending had never allowed our budgets to work. We saved very little from month to month. In that respect, it was as though our decision to switch to a debit card had given us a raise. That’s what it felt like.
In summary, the three advantages of a debit card are:
1) the immediacy of the transaction and how it creates discipline to focus on your bank account,
2) that there is a better chance of staying within the limits of your monthly budget and,
3) spending is reduced and more savings is created.
A Word About Security
There is a great deal of confusion about the security surrounding a debit card. Many feel they do not offer as much protection to the consumer as a credit card. I heard all of these reports before we signed up for ours. So I did my own research at Visa’s website. Here is what I found and how we protect ourselves.
When we swipe our card at checkout, the screen presents two options to select – debit or credit. If you select the debit option, you must supply a PIN number given to you by the financial institution. This is where the risk comes in. If someone knows your card number AND your PIN, they could gain access to your bank account.
So instead of choosing debit, we select the credit option. Even though you select the credit option, the card still functions like a debit card in that it immediately records the transaction to your bank account. At that point a ticket is printed that you must sign to complete the transaction. That’s when the protection kicks in.
When we sign for a purchase we are protected under Visa’s Zero Liability Policy. It protects us from unauthorized charges and returns any funds that are fraudulently taken from our account. All these policies are documented at Visa’s website.
So for enhanced security, I never use my PIN when making a purchase.
Is a Debit Card Right For You?
Is a debit card right for you? The answer to the question really boils down to what you value as a consumer.
If you value spending beyond your means, then don’t get a debit card. You will kill yourself with account overdraft fees. Those penalties come when you try to spend money on your debit card that’s not in your account.
If you value cash in your pocket and plan on going to an ATM three or four times a week to make a withdraw from your account, then don’t get a debit card (even though many would list this flexibility to access cash as a positive for debit cards). In the end, you will be racking up to many fees the ATM charges you to access your money.
If you value building reward points for travel, then debit cards are not for you. Debit cards typically don’t offer those programs like credit cards do.
If you value building your credit score for future loans then don’t use a debit card. Debit cards don’t help you build credit. That only comes through the paying off of credit card and other debt.
If you are having trouble controlling your spending and want to create some discipline in your life, debit cards (or cash) are the way to go. You will find it easier to spend less and save more.
And that’s going to feel like a really good raise.
Questions: Why have you chosen to use either a debit or credit card? What other advantages of a debit card can you think of? Have credit cards hurt or helped you manage money?