With the news reporting a new American trend toward paying off debt more and more people are using debit cards to pay for purchases. Debit cards have the convenience of a credit card in that there’s no need to carry cash or pay high interest rates and finance charges.
There are some issues with debit cards that a consumer must be wary of. Debit cards are linked to a checking account. Before 2003 banks declined debit card purchases regularly if the funds to cover the charge were not in the user’s account. Since that time, banks have instituted overdraft charges. In other words using the card for a $25.00 purchase when there is only $10.00 in the account could garner a overdraft fee of as much as $30.00 in much the same way writing a check would.
Some businesses also utilize what is called “blocking”. These are usually businesses such as hotels and gas stations that require that a card be swiped before service is rendered. Since there is no way to know exactly how much the purchase will be, an automatic amount will be temporarily blocked in your account. Though the purchase is completed immediately, this amount can remain blocked. An example would be checking in to a hotel. The hotel registration swipes the debit card at check-in for a room that costs $119.00 per night. The hotel blocks $300.00 in the account that has $320.00 in it. The same card user goes to a restaurant to eat and uses the debit card for a bill of $45.00. This overdraws his bank account and results in an overdraft fee.
With proper caution, a debit card can be a valuable tool for anyone struggling with personal or family debt and trying to curtail expenses. Protecting one’s self by knowing how much is in the linked bank account at all times, and being aware of businesses and services that block amounts in that account can offer a simpler way of not carrying cash without adding the debt of high credit card interest rates and fees.
