Debit cards are revolutionising the way people are paying for goods and services. A report by an online group, gettingaheadassoc.org, explains how to make the most of a debit card’s convenient features
*A debit card may look like a credit card, but it works like the electronic equivalent of a cheque. When you pay with a debit card, you authorise the credit union to take money directly out of your account and pay it to the merchant. Like a credit card, you simply sign a receipt for your purchase. Unlike a credit card, there is no bill at the end of the month and no interest charge. The debit simply shows up on your checking/current account.
*Debit card deductions are instantaneous. Debit card purchases are immediately deducted from your account, which means that your spending is limited by the balance in your account. Be aware that if you have written cheques that have not yet cleared, your debit card may allow you to overdraw your account.
*A debit card can help track spending. Because debit card purchases are listed on your monthly statement, using your debit card makes it easier for you to track your spending and eliminate the need to try to remember where you spent the money you withdrew from the Automated Teller Machine. Also, if you’re banking online, many personal finance software programmes download debit transactions to your software, where you can assign them to the proper spending categories.
*Debit cards do not provide the same purchase protection as credit cards. In most cases, if you have a problem with merchandise or services you charged to a credit card and you have made a good faith attempt to work out the problem with the seller, the law allows you to withhold payment for the purchase plus any finance or related charges. Typically, you are out of the money that has been deducted from your account until the issue is resolved.
*Some financial institutions charge for debit transactions. While you won’t accrue interest or finance charges on debit card purchases, some institutions charge a monthly or per-transaction fee for debit cards. Shop around for the best deal, particularly if you plan to use your card often.
*Debit cards can make balancing your chequebook a challenge. It is easy to use your debit card to pay for groceries and stuff the receipt in the bag without ever deducting the amount of your purchase from your chequebook balance. To avoid overdrawing your account, devise a system for recording your debit card transactions.