It is a wide misconception that because while using a debit card you are not borrowing money, that you cannot go into debt having one. They are widely considered more debt safe than Credit Cards.
However, that does not hold the whole truth. It is possible to get into debt using a Debit Card. Although when using a Debit Card you are practically using money that you have already deposited in your bank account it is possible to accumulate some debt.
First, debt is accumulated if you spend more than you have in your bank account which will automatically be taken as an overdraft. Secondly, transaction fees and interested can accumulate to form a debt that you are not aware of right away. You can be charged a fee even in the case when your card is not valid or is declined, a fee which you may not notice until it is too late.
Incurring this kind of debt can have an impact on your credit score and may also result in you losing any benefits, rewards or discounts associated with your bank account.
How is Debit Card debt formed:
Usually, individuals using a debit card create some kind of debt while using the card and getting overdrawn when there is not enough money in their account. This results in additional fees that accumulate. And because this happens accidentally most of the time the card use will notice the debt later, when the bill will arrive.
Going into an unauthorized overdraft means that you will be charged a high rate of interest and a daily fee that will cause you to become further and further overdrawn. Not only will you find your self in some kind of debt but you will notice that you will pay more than you planned to for a specific item just because of the interest rate you didn’t calculate in the first place.
Especially “dangerous” for an adding Debit Card dept is using your card in another country. More transaction fees apply which can add up to the current dept and which you will notice only after you get back home.
How to avoid Debit Card Debt
Usually, you do not use a Debit Card to borrow money, but being careless can lead you to a small amount of fees, interests, and overdrafts that can accumulate to form an unexpected debt. You must take some steps to make sure this doesn’t happen to you.
Make sure to check your account
Before you buy anything or withdraw money make sure to check your account’s balance to know exactly the amount you have. This will help avoid being overdrawn and pay for high-interest rates.
Use an online app to track your expenses
Do not wait for the bill to come to your home at the end of the month to realize that you owe money because of your Debit card. Make sure you frequently use an online banking app to track all the transactions you have made with your card, your current balance and any fees that you might have accumulated.
Plan and budget accordingly
To control your expenditure and your finances it is always advised to set limits to your spending, to plan and to know exactly where your money is going. Avoid surprise and uncontrolled expenditure simply by organizing your finances and by limiting your self to the budget you have created.
If you’re struggling with debit card debt you can always call one of our advisors and start working together to find possible solutions and action plans that will relieve you from any accumulated debt or any uncontrollable spending.