Taking control of your debit card habits

Credit cards are functionally the least painful mode of payment because there are no immediate consequences associated with over spending. Many money management experts will suggest that folks switch to “cash-only spending” or debit cards so that the consequences of our spending are felt real time. Due to their functional equivalency, similar credit card bad habits can arise when using debit cards, especially with the encouragement of certain bank features. Below are a few things to be aware of to prevent this from happening.

Beware of the overdraft protection trap. Some find comfort in having their checking account connected to a savings account because it acts as a fail safe if they accidently overdraft. What many fail to realize is that most banks will charge a $30-$45 processing fee to facilitate the transaction. That’s close to the fee one would pay if you missed a credit card payment, or interest on an outstanding high credit card balance. Whereas in a typical overdraft scenario (without protection) the fee is somewhat justified because you are drawing on the bank’s credit to make up the difference in the purchase, ironically overdraft protection results in a charge for access to your own money. Check to see how your bank’s overdraft protection operates. If the bank won’t get rid of the fees associated with overdraft protection, it may be time to disconnect your accounts and become more mindful of your debit card usage.

Maintaining a low checking account balance. Credit is deceiving because it tricks us into believing we have access to large amounts of cash. Considering that credit cards only require small minimum payments at the end of each month, we can easily fall into the pattern of spending more than we can pay back (or even budgeted for). Similarly, if we know that our checking accounts have large balances (after rent and other necessary expenses have been deducted), we may be tempted to use our debit cards in a similarly abusive way. In other words, we know we have “wiggle room” in which to make our impulsive purchases. I eventually got in the habit of assigning a place for my money, moving the left over cash into a savings account to avoid it laying vulnerable to my wayward “wants”.

Discontinuing certain subscription accounts. I personally have a habit of paying many of my bills with credit cards. While I enjoy earning the points, it leads me to maintain (or even forget about) way too many subscription accounts than I rarely use, and thus…waste money on. Moving all automatic payments to a checking account (as suggested by money management gurus) won’t solve the wasted money problem. If any of your subscription accounts give you pause due to this fact, you should probably reconsider the account in the first place before transferring it over.

Refusing the “free” credit card. Once upon a time, opening a bank account used to be just that: opening a bank account. Now, I think with every bank account I have opened, I have been offered a “free”, pre-approved credit card associated with that bank. While I’m not exactly sure why this happens, I’ve realized banks are becoming more like cable companies, attempting to “bundle” your finances within its four walls, making access to credit that much easier. The way they tempt you is by offering sign-on points when you charge a certain amount, and removing the associated “maintenance fees” from your checking account so long as you maintain certain balances. Rarely are the sign-on points worth the value or the credit balance you have to reach within your planned budget. My advice, reject the credit card and ask the bank for other ways to remove the maintenance fees. They want to keep your business.