Debit Cards: Pros & Cons

The benefit of having a debit card, that is, spending only the money that you have, may also serve as a drawback for emergency situations, what with the limited funding.

Find out why debit cards are becoming an increasingly more popular form of payment, and how they can be used to maintain healthy spending habits.

Debit cards may look like credit cards, but they operate very differently. These are some of the main pros and cons of owning a debit card, and how it can benefit your day-to-day spending.

Debit card pros:

Ensures spending within your means

Because a debit card is linked to your cheque or savings accounts, any time you use it to make a purchase you are only taking money from your own account. If your account does not contain sufficient funds, then you cannot make the purchase. This means that you are being forced to keep within the bounds of what you can afford. The only way to spend beyond your means is by dipping into any overdraft facility you may have on your bank account, but that will not be nearly as open to abuse as any credit limit you may have on a credit card. Spending on credit cards effectively involves borrowing the money, and therefore interest rates may apply.

Makes budgeting essential

Having a debt card encourages you to budget your finances. If you know you only have a certain amount of funds available every month, you are more likely to sit down and carefully draw up a way to keep within those limits. In this way, debit cards can be seen as a training tool for a credit card for anyone who cannot yet get one due to credit rating or age.

Ease of use

Carrying a debit card means you don’t have to carry cash or cheques. Debit cards are easy to use, quickly processed at the checkout, and provide a detailed record of your transactions so you can continue to monitor your budget and make any changes you think necessary. Spending with cash can be easily forgotten so you do not get a sound idea of where your finances may need adjusting.

No credit check

As you are not borrowing money, and your debit card is linked to your bank account, you do not have to undergo a credit check to receive a debit card.

Widely accepted

There are thousands of ATMs all over Australia to allow instant access to your cash.

Safe and secure

Debit cards operate the same way as credit cards when transactions are made, with the same security measures applied to them. PIN or signature is required to authorise an in-store purchase. Likewise, if you lose your debit card or it is stolen, it will be immediately cancelled when you call your bank.

Debit card cons:

Spending restrictions

The downside to owning a debit card only becomes apparent when it is compared to a credit card. Whereas a credit card allows for that special purchase that cannot be covered by your present finances, a debit card does not offer that facility, restricting you to only the funds within your bank account.

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