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Debit cards are one of the most popular ways to make both online payments and in-person purchases. These cards are directly linked to your bank account and deduct the funds from your balance when making a purchase. If you don’t have enough in the account or you don’t have an agreed overdraft, then you won’t be able to make the purchase.
There are a number of advantages and disadvantages of paying with debit card. For example, they are quick and convenient to use and can prevent you from getting into debt. On the other hand, the funds are limited, and if you end up using your overdraft then debit card fees can be greater than if you had used a credit card. Keep reading to find out more about how debit cards work and what you should consider when choosing a payment method.
What is a debit card?
Before looking at the disadvantages of having a debit card, it’s important to understand exactly how they work and how they differ from credit cards. In a nutshell, a debit card deducts money directly from your checking account when it is used. For this reason, they are also referred to as “bank cards” and “check cards”. They can be used by businesses and individuals to make payments both online and in person, and may also be used to withdraw funds from an ATM.
On the other hand, credit cards give you access to a line of credit that is provided by a bank. This means that when you spend with a credit card, you are borrowing money from the issuer in order to make purchases. As part of this, you will be required to pay back this money within an agreed timeline, and there will be limits to what you can borrow.
Advantages and disadvantages of paying with debit card
While debit card processing fees can be a financial burden, there are numerous advantages to using them for both businesses and individuals:
Debit cards can prevent you from getting yourself into debt. By only allowing you to spend what you have in your account, they encourage you to operate within your means.
Debit cards also tend to be inexpensive if you do not use the overdraft. There are no annual charges, but there are other debit card fees to consider if you end up spending more than is in your checking account.
Debit cards are easy to obtain and use. Most providers will issue you a debit card on request, whereas credit cards will require you to pass credit checks before approval.
Debit cards are readily accepted, making them a convenient payment method for all kinds of transactions.
Despite their convenience and ease of use, there are also many disadvantages of debit cards:
Although they are inexpensive if you spend within your means, debit card processing fees can be quite expensive. Some ATMs will charge withdrawal fees, and if you use more than the agreed overdraft limit then the fees tend to be much greater than those incurred by credit card usage.
Another disadvantage of debit cards is the fact that they have limited funds, which can slow down business. Credit cards can ease cash flow by allowing you to spend money that you have not yet received, whereas with debit cards you are forced to wait until you actually have the funds available.
There is a potential for fraud when using debit cards. While banks attempt to give you protection from fraud, there is always a possibility that you could fall victim to it when using a debit card. Make sure to check with your bank to learn about what forms of fraud protection are available to you.
There are a number of advantages and disadvantages of debit cards, and in reality they are better suited to lower cost purchases. For expensive purchases or in cases where cash flow may be limited, a credit card might be the better option.
We can help
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