Debit cards are the most popular payment form in America, according to a 2019 study by the U.S. Federal Reserve. Consumers can use debit cards almost everywhere. Plus, they beat out cash thanks to the rising popularity of online shopping.
A debit card is a very useful financial tool, depending on your financial goals and situation. Users need to be aware of both the pros and cons of this piece of plastic before they go on a spending spree. This article outlines five pros and cons of the debit card used for the everyday consumer.
Pros of a Debit Card
A Curb to Overspending
A lot of people apply for credit cards so they can spend money they don’t have. Buying what you want when you want has its appeal. But credit card debt is a heavy burden for millions of Americans.
With a debit card, you can only spend the money you have in your account. Keep track of how much money you have, budget accordingly, and you’ll be good to go. Additionally, the money you spend is immediately deducted from your account. When you use a credit card, the card’s current balance might not update immediately.
No Application Necessary
Getting a credit card can be difficult, especially for someone with poor or nonexistent credit. Debit cards pose no such barrier. You can open an account at your local bank with as little as $50 and get a card in one trip.
Once you get your account set up, the rest is smooth sailing. You can directly deposit your paychecks to grow your account. Plus, you can monitor your finances with your bank’s website or mobile banking app.
If you lose your wallet, there’s no guarantee that you’ll see it again. Any cash inside will likely be gone forever. However, a debit card can be shut off so that no one else can access your funds.
Along with this protection, banks are continually implementing new measures to ensure cybersecurity. To ward off intruders, your account information will be protected through the use of encryption, two-factor authentication, and more.
No Fees to Worry About
Many credit cards come with annual costs. Often debit cards have no such fees. You can swipe away without worrying about paying for the card’s use.
Of course, not all credit cards have fees, and some banks have to check accounts that do. In general, however, debit cards are less likely to have hidden costs. And you can avoid pesky ATM charges by using your bank’s machines.
A Great Option for Older Teens
Parents who want to start teaching their kids about finances don’t need to look any further than a debit card. Using a debit card, teenagers will get a tangible lesson in fiscal responsibility. They can use the card’s app or the bank’s website to learn how to monitor their spending.
If you give your teenagers a debit card, you can teach them how to budget and what sales tax is. They’ll learn to manage their money and be better prepared to face the world of finances as they grow up.
Cons of a Debit Card
No Credit Building
One benefit of a credit card is that it can improve your credit score when used properly. To get the highest score possible, you have to make your payments on time. You’ll also need to keep your credit utilization rate low.
A good credit score can qualify you for better rates on loans. This is key when making a large purchase, such as a house or a new car. If you have a favourable credit history, you can also apply for cards that offer better rewards.
Limited Rewards Programs
Speaking of rewards programs, these are another reason credit cards are popular. Consumers can use them to rack up airline miles or points toward hotel stays. Unfortunately, most debit cards lack these kinds of perks.
While there are debit cards that come with rewards programs, they’re much more limited. For example, some credit cards will give you up to 5% cashback on select purchases. Debit cards might give you 1% cashback with more limitations.
Limited to Smaller Purchases
Every once in a while, you may want to buy something with a hefty price tag. You may even need to break up the purchase into payments. With a debit card, this often isn’t possible. You’ll likely have to pay in full using your account balance.
If you have a credit card, you can put the full cost of the sofa on your card and make monthly payments thereafter. A one-time $2,000 expenditure might not be possible, depending on your finances. But paying the purchase off over time can help you get what you want.
Rental Car Complications
This one is a pain for the frequent fliers out there. Renting a car with a debit card is possible, but it’s more complicated than using a credit card. Rental car companies may require extra documentation before they allow you to use a debit card. You might need proof of insurance or a second form of identification.
Rental car companies prefer credit cards because it’s easier to take a security deposit. These deposits can be easily added and removed from credit card accounts.
Difficulties Disputing Charges
If you notice a fraudulent charge on your credit card, you have 60 days to dispute it. This comes in handy when you’re charged double for a single purchase or an unauthorized transaction slips in. And the timer doesn’t start until you get your bank statement with the disputed charge.
The process of disputing a charge is more difficult with a debit card. For one, you’re losing your own money rather than the credit card issuers. While banks often have customer protection programs, these programs might not be as robust.
Chances are, a debit card is already part of your financial life. While you should take advantage of the pros of your debit card, you also need to take its cons into account. Don’t let your debit card become a hindrance. The more you know about it, the more your card can help you.
Thank you for reading!