In the recent times, quite a large number of people have started avoiding their credit cards and have switched to using debit cards. People have started believing that it will help them in living within their means. However, debit cards do have their own traps and you should be financially responsible enough while handling such cards.
Here are 5 debit card traps which you should be aware of and try to avoid:
1. Overdraft Fees: Since last year, i.e. 2010, the Federal Reserve has prohibited banks from charging the consumers with overdraft fees on debit card purchases if the account has insufficient funds. However, you can still be liable for paying bank charges if you overdraw your account as per the Protection Plan which your bank will include in your debit card agreement. In order to avoid this trap, you should keep a close look into your checking account through the online banking facility which the bank has provided you with.
2. Bank fees: If your debit card gets stolen and your account has been emptied of dollars, you will accrue bank fees. Most people don't know that debit cards hit you with fraudulent payments immediately. If you face such a situation, you should ask your bank to dispute the fraudulent charges and carry an investigation on your behalf. You should also ask the bank to credit your checking account with the debited amounts immediately. This credit will be temporary and will be given to you as the outcome of the investigation is pending.
3. Recurring charges/fees: If you enrolled yourself in a gym, or any other club, your debit card details will be kept on record for recurring membership fees. Many a times, you may not be aware when they would deduct money from your account. Even after you cancel your membership, you'll find that your account has been debited mistakenly. In order to avoid this, you can pay the fees by using a personal check or credit card.
4. Pre-paid cards: Recently, pre-paid debit cards have become quite popular. Most parents prefer to give their kids a pre-paid debit card rather than a credit card with a large credit line. But pre-paid debit cards carry activation fees, transaction fees, monthly fees as well as re-activation fee is the card has elapsed. Sometimes, pre-paid debit cards may become overdrawn when fees apply on an empty card. It will be better to set up a checking account without overdraft protection. This will help you to prevent purchases when you've insufficient funds in your account.
5. Auto billing: It is better to not go for auto billing with your utility companies using your debit cards. If you do so, you can end up paying more unexpectedly due to increased consumption or ending of a promotional rate. Rather than using debit cards, it will be better to make the payments online, after you've verified that you've the required funds to pay the bills.
In a nut shell, whether you use a credit card or a debit card, you should be financially responsible and maintain a budget so that you don't fall into any trap. Both these things will help you in managing your debts in a better manner.