Debit cards are payment cards that are linked to your checking account. When you use a debit card to make a purchase, the money is taken directly from your checking account balance. Eighty-seven percent of Americans use debit cards to pay bills, shop online and more. Debit cards offer the convenience of making purchases without having to carry cash, but they can also be used to withdraw money from your checking account.
Let’s take a look at some of the pros and cons of debit cards.
Pros of debit cards
One of the advantages of using debit cards is that they do not incur debt. Credit card users can easily lose track of their spending because they are using money that is not actually theirs. Using a debit card limits spending to the current balance available in your checking account. This can be helpful for those with out-of-control spending habits or young people who may be learning how to manage finances for the first time.
No annual fees
When looking at the pros and cons of debit cards, a lack of annual fees can be a major plus. Unlike credit cards, debit card users aren’t required to pay annual charges or maintenance fees. Many financial institutions, including Texas Tech Credit Union, even give users debit cards with additional perks, such as cashback for spending up to a certain amount. Debit cards also give customers convenient access to cash from ATMs that are affiliated with their banks, but many will also reimburse charges incurred from non-affiliated ATM usage. Texas Tech Credit Union offers out-of-network ATM reimbursement fees of up to $25* nationwide.
Easy to get
Someone with a short or poor credit history may have difficulty obtaining a credit card because they often require a well-established credit history or high credit score. But debit cards may be given to anyone with a checking account, so having poor or no credit can’t prevent someone from obtaining a debit card.
Cons of debit cards
Debit cards won’t help your credit score
Unlike credit cards, consumers can’t build positive credit through debit card usage. However, a negative checking account balance or unexpected overdraft can negatively impact your credit report and score. Even if you are not currently looking to make a major purchase (e.g., a vehicle or a home), employers and landlords are also likely to check your credit score. A few negative marks could give them the impression that you’re not financially responsible.
When using a debit card, it’s imperative that you closely track your expenses. If you spend more than what is available in your checking account, you may be hit with overdraft or insufficient funds charges, which can cost up to $35. If you don’t check your balance on a regular basis, it can be very easy to spend more than you have. To help better monitor your spending, sign up for banking alerts to keep track of your expenditures and current balances, and log in to your online account at least once per week to review purchases and statements.
Using your debit card to make online purchases can be risky, and losing your debit card can also be problematic. Unlike credit card companies, some banks won’t reimburse customers for fraudulent charges made using debit cards. And although credit card companies will typically reimburse fraudulent charges immediately, a bank may take up to two weeks to replace stolen funds. This could leave you unable to pay your expenses or bills and might negatively impact your credit score.
The right debit card for you
Although there may be numerous pros and cons of debit cards, having and using one is almost a necessity in today’s world. From withdrawing cash to paying bills, a debit card can make your financial life much easier.