| Debit Cards Costly For Poor People |
| By Credit Federal |
Published
09/2/2007
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Secured Credit Card
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Free Tips for Debit Card Users
Debit cards are convenient, but imagine this... You stop off for fast food and charge the order on your debit card. You didn't realize it at the time, but you spent $5 more than your current balance. To make matters worse, you ignore; or overlook, this fact on a few statements and end up getting hit with $350 in banking fees.
That's what happened to one debit card user.
Overdraft charges amount to $17.5 billion each year, according to estimates by the Center for Responsible Lending. Whether for good or bad intentions, Banks have made it easier for debit card users to overdraw their accounts and to subsequently get charged fees.
Not so long ago, you couldn't so easily overdraft your account. Most banks made it standard practice to deny debit card purchases if you lacked sufficient funds in your account. But now, banks will actually help you overdraw by offering you a line of credit, commonly called overdraft protection. Of course this protection comes with a high fee instead of a standard loan interest rate.
Use our free software to track expenses and to itemize bills.
These overdraft fees are so high, that people would actually pay less if they went to a bank and set up a system to link their account to a savings account, a line of credit or a credit card to cover any overdrafts.
And, unless debit card holders keep accurate tracks of their balances, they make have less of a spending limit than they think since many banks don't have real time transactions. Hence, there will always be outstanding transactions that the cardholder has authorized but has not hit the bank.
Fact is, debit cards are really just plastic versions of checks, so cardholders must keep track of what they're spending just like when they used checks. Otherwise if you wait until the next debit card statement, it's too late.
Banks actually help make it hard to keep track of balances, especially when you overdraft via multiple debits. If you make five purchases of $100, $60, $25, $10, $5, for a total of $200 but you had only $175 in your account, the bank may actually charge you for three overdrafts (the $25, $10 and $5) instead of just one overdraft for the $60 charge.
Tips to Prevent Debit Card Penalties:
Talk to your bank or credit union about an option to draw funds from a savings account, and keep extra money in the savings account to cover overdrafts.
Don't pull out your debit card to buy small stuff that you can buy with cash. Small purchases are more difficult to keep track of and not all debits post as soon as they are made.
Keep a safety margin of extra money in the account.
Many banks will automatically enroll you in an overdraft protection program which can be costly. With this program, a bank won't reject your debit card purchases if you're short on cash, but you could be charged $25 to $36 for each bounced check or overdraft with a debit card. Fees vary by bank. Talk to your bank about getting fees cut or lowered.
Do not use a debit card to buy gas, check into a hotel or rent a car. A $100 hold can be put on some purchases with a debit card at gas stations even though you bought only $15 in gas.
Record every dollar you withdraw at ATMs, as well as what you spend with debit cards or checks. Take into account an extra $2 or $2.50 ATM fees if you use a machine your bank doesn't own.
Know that your bank likely will charge you a fee if you deposit a check from a friend and that check bounces.
Balance your checkbook. Keep a running tally of your purchases and any fees before you get the statement.
Check your account online. But understand that the balance you get online doesn't mean that all checks have cleared and that you have the amount listed to spend.
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