Choose Debit Over Credit, But Be Wary of Overdraft Protection

Faced with sky-high interest rates and increasing fees, many consumers are giving up credit cards in exchange for debit.

Like credit cards, debit cards are convenient - they don't require a trip to the ATM, don't involve making change, and make receipts obsolete since you can usually track your purchases on a bank statement. But they're also free of the major drawbacks of credit. Most importantly, they won't drag you down with that dreaded interest. And because you're limited to the money in your bank account, they don't encourage overspending like credit cards do. In fact, they're an excellent tool if you're trying to reduce your reliance on debt.

Debit cards almost sound too good to be true. And they actually can be if you're not careful. See, banks just had to find a way to make money off this new phenomenon - you didn't think they were going to let you get away with anything for free, did you? So they started quietly enrolling customers in an overdraft protection program.

Overdraft protection kicks in when you debit more than what's available in your account. The minute you overdraw, your debit card essentially becomes a credit card. Your bank covers what you can't - hence, the "protection" - and slaps you with a service charge. This fee is typically about $30 - ironically, larger than most debit purchases. But it can end up being even more because many banks will charge interest on your "loan" until you replenish your account.

Luckily, there are ways around this little debit drawback. Your bank might have automatically enrolled you in the program, but you can always ask to opt out. Maybe more importantly, you can make it a point to keep track of how much is in your account.

If you're carrying a large debt burden, using debit or cash makes more sense than credit. It won't add to your debt, it doesn't require interest and it encourages you to think about your purchases. But really, payment method is only one part of the equation. If you truly don't have enough money to get by, it won't matter much whether you use credit, debit or cash - you're going to keep running into trouble until you find help.

Paying down your existing debt is one of the easiest ways to free up more money - and a bankruptcy plan can help you do it. You can find out for free if a plan is right for you when you sign up for a complimentary personal debt analysis with a DebtStoppers attorney in Chicago or Atlanta. It doesn't get much more convenient than that.

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