Debit cards aren’t designed for borrowing, but that doesn’t mean you can’t get into debt by using one.
Making payments with your debit card uses funds from your own bank account, so you essentially are not borrowing any money for the transaction. It’s much the same as using cash, but with more security and fraud protection.
However, if you pay for something and there aren’t enough funds in your account, you will go overdrawn and this is where fees and charges are incurred.
Overdraft charges and overdraft interest can quickly add up if you don’t make a payment to cover them, especially if you keep spending. In some cases, even if your debit card payment is declined, you can still be charged a fee that takes you into your overdraft – and be in debt before you know it.
Incurring this kind of debt can have an impact on your credit score and may also result in you losing any benefits, rewards or discounts associated with your bank account.
Common causes of debit card debt
The most common cause of people falling into debt with their debit cards is using it to make payments when there aren’t enough funds in the account for them to be covered. This often causes people to become accidentally overdrawn and incur charges.
This also becomes the case when you withdraw money from your account that you essentially don’t have. Going into an unauthorised overdraft means that you will be charged a high rate of interest and a daily fee that will cause you to become further and further overdrawn. This in turn will mean that you will end up paying back more than the original transaction that took you into the red in the first place.
You can also incur charges by using your debit card abroad, leaving you with a hefty bill by the time you land back home. It’s important to check with your bank before you leave to ensure you avoid this.
How to keep on top of debit card debt
As stated previously, debit cards aren’t designed to get people into debt, but there are steps you can take to help stay on top of you debit card purchases.
- Check frequently
It’s important to check your account regularly before you make purchases or withdraw money. This will help you to avoid spending money that you don’t have and entering into an unauthorised overdraft.
- Track your spending
Using a banking app or online banking allows you to keep track of your transactions and control your spending. Doing this will help you avoid a low balance and reduce the risk of charges.
- Set a budget
Setting yourself a weekly spending budget is one of the best ways to control your finances. Giving yourself limits means you will know exactly where your money goes each week and allows you to be prepared for surprised expenses.
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