Put Down the Debit Card!

They seem so convenient.

Need a latte – nonfat, cinnamon sprinkles – but short on cash? Just whip out that debit card and be on your way. But there’s a cost for that convenience, and that cost might be way too high to pay for many.

Debit card usage is the culprit behind rising overdraft charges at many financial institutions, as this article from MSNBC’s Red Tape Chronicles feature shows. The problem? If you lack the funds in your account to pay for that latte (through a math error, an erroneous charge, or a failure to account for a previous charge, perhaps), your bank won’t deny the charge, as many people assume it will. Rather, the charge will be approved – but you’ll also get smacked with an overdraft charge. Result? That $3.82 latte ends up costing you as much as $33.82.

Bankruptcy doesn’t happen overnight. It’s the result, generally speaking, of a combination of factors – a sudden layoff, an unexpected medical bill. Many times, the major event itself wouldn’t be enough to trigger a Chapter 7 or Chapter 13 for the consumer, but for a lack of a solid financial education, something sorely lacking in U.S. schools. And with the ever-increasing changes in financial practices, it’s even harder for a consumer to keep up with the best practices. When banks keep adding fees and hidden charges, the deck is definitely stacked against the consumer.

What’s a better solution? Withdraw a set, budgeted amount of cash each week from the ATM. Designate that cash as your spending money for the week. When it’s gone, it’s gone – no debit card usage for impulse purchases. It might seem draconian, but it will avoid those $33 lattes!