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Using debit cards for spending is a convenient way to pay for things without the worry of going into debt.
In fact, debit cards are the most widely used form of payment in the United States at 28% beating out both cash and credit cards.
But as popular as debit cards are, there are drawbacks to them as well.
In this post, I highlight the biggest pros and cons of debit cards.
Be sure to understand how this form of payment works so that you don’t run into any surprises if you decide to make them your preferred payment method.
Table of Contents
10 Pros And Cons Of Debit Cards
5 Advantages Of Debit Cards
There are many pros of debit cards.
Here are the biggest benefits you can expect to see when you use a debit card over other forms of payment.
#1. Avoid The Need For Cash
By far the biggest benefit is being able to spend with a debit card allows you to not have to worry about carrying cash with you.
Most people don’t like carrying a large amount of money around with them and debit cards solve this.
And since most debit cards are backed by Visa or Mastercard, you can rest assured that your card will be accepted at every retail store that accepts credit cards.
#2. Avoid Debt
Arguably one of the biggest advantages of debit cards is the fact that you can spend without worrying about going into credit card debt.
Since there are spending limits on debit card purchases in addition to only spending what you have in your checking account, you will not be entering into the dangerous cycle of high interest debt.
This is a great option for people who have just dug themselves out of debt and are learning to spend responsibly again.
It’s an easy way to spend the money in your bank account without the possibility of going into debt.
#3. Limited Fees
Another of the benefits of debit cards over credit cards is that they do charge minimal fees.
First is a late payment fee.
Since the money from debit card transactions come directly out of your checking account, there is never a monthly payment to make.
As a result, there are never late payment fees.
Another fee you avoid is an annual fee.
While not all credit cards charge this fee, a handful do and it can be anywhere from $95 a year up to $500 annually or more.
This means every year you have the account open, you will be charged a fee simply for having the card.
By using a debit card, you avoid this fee entirely.
Assuming a credit card charges a $95 annual fee, in 5 years that comes to $475 in fees!
While there are no annual fees, you do have to pay attention to the type of checking account you have linked with your card.
This is because many banks charge monthly maintenance fees on certain account types or if your checking account balance drops below a stated threshold.
Over the course of a year, this fee could rival the annual fee of a credit card.
#4. Easy To Get
With credit cards, you need to apply, have a good credit score, and have a credit check before you are approved for a card.
With a debit card, as long as you have a checking account with the bank, you simply fill out a form and you get a card.
There is no background check or credit report review.
In some cases, you can get your new debit card the same day while in other cases you have to wait for a card to be mailed to you.
#5. Fast Access To Cash
One of the nicest things about using a debit card is that it doubles as your ATM card.
As a result, it gives you the ability to get cash back at the checkout.
To do this, you simply need to select the debit option when paying and not the credit option.
From there, you can choose the cash back amount you want to take out from your checking account.
Most stores give the option of as little as $10 and max it out at $100.
You might find some select stores limiting cash back amounts lower than $100 to limit their exposure should your card be compromised.
By being able to use your debit card for ATM withdrawals at the cash register, you can save yourself time and ATM fees as well.
5 Drawbacks Of Debit Cards
As great a debit cards can be to consumers, there are some downsides as well.
Here are the biggest cons to debit cards you need to understand.
#1. Hassle If Identity Is Stolen
Hand down one of the biggest downsides to debit cards is identity theft.
Identity theft is a real possibility in today’s world, and this is regardless if you use a credit card or a debit card.
- Read now: Learn how to protect yourself from identity theft
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However, there is a greater risk to your money if you shop using your debit card.
This is a key difference that you need to understand.
Debit cards don’t have the same fraud protection as credit cards.
If a hacker gains access to your card and makes unauthorized charges, you are out the money until the bank reviews your case.
If they determine fraud occurred, they will refund your money.
Here is how this is different compared to credit cards.
With a credit card, if you see any unauthorized purchases, you notify your credit card company.
While they investigate, you are not responsible for paying for the charge and interest does not accrue.
Here is an example of what happened to me when my debit card was compromised.
I found out that $300 was charged and I alerted my bank.
They opened a case and investigated.
After 3 months, they determined it was fraudulent and refunded me my money.
The issue here is I was out the $300 for the 3 months they were investigating my claim.
At the time, money was extremely tight and not having $300 to pay my bills created a lot of stress in my life.
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#2. Limited Funds
Another big drawback of debit cards is they have daily spending limits.
Each bank or credit union sets their own limit to how much you can spend using your debit card.
Some set the limit at $1,000 while others set it as high as $3,000.
In most cases, this isn’t an issue.
However if you are making large purchases, you could run into a problem if you are trying to buy too much.
The good news is most banks do allow you to change this limit.
All you have to do is call your bank and request an increase.
The increase can be temporary or permanent.
You will also want to know when the increase will go into effect.
Some banks make the change immediately while others take a few days.
#3. Potential Overdraft Fees
While it is definitely a benefit to not have to worry about finance charges or going into debt with a debit card, you do have to be aware of overdraft fees.
These are fees that the bank charges you when you don’t have sufficient funds in your checking account to cover the amount you spent.
On average, banks charge $33 in overdraft fees.
And this is not a one time fee.
If you buy something today with your debit card and overdraft your account, you pay the $33 fee.
If you don’t realize what you did and spend more money tomorrow, you get hit with another $33 fee.
Even if you don’t go shopping but a paper check you mailed in is cashed, you pay the fee.
The good news is you can turn off overdraft protection which eliminates the fee.
However when you do this, your card will be declined if there isn’t enough money in your checking account.
Also, some banks, both brick and mortar and online banks offer an overdraft credit line.
- Read now: Learn the pros and cons of online banks
This charges you annual rate for the amount you overdraw your account.
In the short term it is much less than the typical fee, but over time it will cost you more.
Finally, many banks offer the ability to link your savings account with your checking account.
If you overspend in your checking account, the difference will be taken from your savings account so you avoid the overdraft fee.
#4. No Building Credit Score
Using a credit card helps to build your credit history.
Showing you are responsible with your money to lenders, including paying your bills on time, lowers your credit risk and raises your credit score.
This results in lower interest rates when you do need to borrow money.
If you spend exclusively with your debit card, you won’t build credit report as much.
You will still be able to build it if you take out student loans, auto loans, a mortgage, or other loans, so it’s not like you need to use credit cards to improve your credit.
Just know however, if you are younger or have bad credit, it will take longer to build up a good history and score if you use your debit card.
#5. No Earning Rewards
One of the major benefits of credit cards is the rewards programs they offer.
Not only can you earn a lot of travel points or cash back with sign up bonuses, but you can earn travel reward points and cash back on all your purchases too with a rewards credit card.
Depending on how much you spend with your credit card, this could total up to hundreds or thousands of dollars a year in rewards.
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With debit cards, you don’t have the option, at least not to the extent you do with credit cards.
Many banks realize this is a disadvantage of debit cards, so they have started to create rewards programs.
The problem with these programs is the number of merchants where you can earn cash back is very limited.
So unless you typically show at a particular store or are willing to change your shopping habits, odds are you won’t earn very many rewards.
The good news however, is you can still earn cash back online shopping with your debit card when you shop through a cash back portal site like Swagbucks or Rakuten.
This allows you to earn some cash back without the need for rewards cards.
At the end of the day, debit cards are a great option to use as a form of payment.
But like anything, there are pros and cons to debit cards.
It is important you understand both so that you make the smartest financial choices for you.
I have over 15 years experience in the financial services industry and 20 years investing in the stock market. I have both my undergrad and graduate degrees in Finance, and am FINRA Series 65 licensed and have a Certificate in Financial Planning.
Visit my About Me page to learn more about me and why I am your trusted personal finance expert.