What are the advantages and disadvantages of debit card ownership?
Is it better to have a debit card – to use a debit card – or is it better to rely on credit cards or cash instead?
Fact is, debit cards represent among the most – if not the most – convenient ways of spending money besides carrying a lot of cash around with you.
The problem with carrying a lot of cash around with you is, if you lose it, you lose it.
If you lose a debit card, you get another one.
A debit card is representative of “plastic money.”
It’s similar-ish to a credit card, though it is, unlike a credit card, linked to one of your bank accounts.
Making a purchase with a debit card?
Generally, you swipe the card (or the salesperson swipes it for you) against a card reader.
The money is debited in direct fashion, within seconds, straight from your bank account.
In this way, it works the same way as a credit card – you also swipe a credit card against a card reader when making a purchase.
However, the difference is that with a debit card, as mentioned, the cash comes directly from your bank account.
What’s more, you are unable to spend more, when using your debit card, than the amount that’s in your bank account – the account that’s linked to your debit card.
In this way, unfortunately, or fortunately, as the case may be, there’s no way that you can improve (or damage) your credit score.
Debit cards functions in a couple of ways.
First, they – it – works as an ATM card.
You withdraw cash from an ATM machine using your debit card and a PIN (personal identification number).
Second, the debit card works in a similar fashion to a check.
In other words, just as with a check, the money is deducted directly from your bank account.
Though, with a debit card, that deduction happens within a matter of seconds.
When you write a check, the check has to be cashed and that process takes up to a week, perhaps even longer.
So, what are the advantages and the disadvantages of debit cards?
Let’s find out now.
Advantages of Debit Cards
1 Debit cards are extremely convenient to use
For most people the key benefit to debit card ownership is the card’s convenience when using it.
It’s an instantaneous transaction when using your debit card. Meaning, when you use the card to pay for something, the money is “removed” from your account instantly.
There’s no hanging around to find out if your transaction has been approved. If the transaction is or is not approved, you get to know about there and then.
There’s no hanging around to ensure your funds have cleared.
What’s more, it’s much quicker than if you were to use a check.
2 Cash-available card
There are times when you need cash in hand to pay for a purchase.
For example, perhaps you’re at a street market.
Any chance a street market vendor will accept your debit card for payment of goods?
Almost zero!
Not to fret, though.
Simply find any ATM machine at almost any bank, or at a supermarket, or at dozens of other places where ATMs are installed, and make an instantaneous withdrawal of cash from your bank account.
Additionally, if you use your debit card in a store, there are numerous stores that provide you with “cash-back” points for doing so.
These points you can use against the cost of purchase at a future date.
3 Protection of your PIN (personal identification number)
Normally, depending on which country you’re in, a debit card comes together with a four-digit PIN. PIN stands for personal identification number.
This PIN is required when you’re making a purchase, or when you’re withdrawing cash from an ATM machine.
What the PIN does is that it provides you protection should your card go “missing.”
Your card can go “missing” in one of two ways:
a) You lose the card
b) Someone steals the card
To use the card, you need the PIN. Without the PIN, unless you’re a very capable computer hacker, it’s impossible to use the card.
And, if you do lose your card – whether you actually “lost” it, or should it have been stolen from you – you can easily block use of the card by calling your card-issuing bank or by using an app on your phone – if you have that facility available to you.
4 Debit cards are easy to get
To get a debit card, the primary requirement is simply to have yourself a bank account.
Even if you deposit a very minimal amount – anything from $25 for some banks – you can open a bank account.
If you were to attempt to obtain a credit card, that’s a whole different ballgame.
Credit card approval is fully dependent on credit history.
And, while some banks may check your credit history before issuing you a debit card, most don’t bother.
5 Excellent tool for budgeting
For many folks, the “beauty” of owning and using a debit card is that you can’t spend too much.
Well, you can spend too much, on the provision you have an overdraft with your bank that you can dip into.
But overdrafts, in general, tend to be a few hundred dollars and not much more than that.
No overdraft with your bank account? Then there’s no way you can use your debit card to rack up any debt.
6 Wrongful payments reimbursed
If you were to notice some strange activity on your account when you’re checking your bank account’s monthly statement, you can take it up with your bank.
If you believe that a payment, or a number of payments, made via your account are incorrect or are suspicious in any way, your bank may choose to reimburse you the full amount.
In this way, a debit card works in the exact same way as does a credit card – you’re completely covered.
Disadvantages of Debit Cards
1 As mentioned above, debit cards don’t help you out in building your credit score
Debit card use in no way help (or hinder) a credit score.
The great thing about building a credit score is that your credit score will determine if you can get loans or credit cards.
What’s more, with a great credit score, you can get a very low interest loan, and/ or, you can get your hands on some excellent credit cards that come with numerous perks.
Plus, a healthy credit score will help if you wish to get a mortgage for a home.
Nevertheless, there is also an advantage here, as has been stated.
Using a debit card cannot negatively impact your credit score.
2 Numerous fees
Some banks, though certainly not all, impose fees for debit card usage, etc.
The fees may be added to your account if you use your debit card “too much.” Or, you may be charged on a monthly basis just for the “pleasure” of owning a debit card.
Check the small print before you ask your bank to issue you with a debit card. If there are countless fees then look elsewhere.
3 Instant money comes with instant risk
If some not-so-nice person were to get their hands on your debit card, and if you don’t report your debit card missing asap, you could be in for a nasty shock.
Mind you, unless the thief is a thoroughly adept computer hacker, or unless they have access to your PIN, they’ll get nothing, besides a debit card, which, right now, is entirely useless to them.
3 Merchant and banking institution blocks
Debit card merchants, at times, can and do place a hold or what is referred to as a “lien” on your bank account.
What this does is that it ensures the merchant that you have sufficient greenbacks to pay for the intended transaction.
Those that use gas stations frequently may see this occurring, erm… like, regularly.
Generally, the hold will be released care of your bank after approximately 48 hours.
What’s more is that banking institutions, if they are at all suspicious about the usage of a debit card, will reject the intended payment and will, quite often, also suspend your debit card usage.
While that’s a pain in the… to have to deal with, it’s easy enough to put a fix to it.
Just give your bank a call and let them know that it was, indeed, you who was using your debit card to make a payment and not some fraudster.