Debit Can Help Rein In Debt As Long As You Don’t Overdraw

When I first discovered the wonders of the debit card, I thought I was in heaven. Here was a form of payment as convenient as credit, yet seemingly as safe as cash.

Unlike paper money, it didn't require me to plan a trip to the ATM. But unlike credit, it didn't charge me interest or encourage me to spend beyond my means. I used it at the grocery store, the gas pump, the coffee shop - anytime I didn't have cash but didn't feel like adding to my debt. It seemed too good to be true. Turns out that it almost was.

One day I opened my bank statement and my jaw about dropped to the floor - what should have been a $5 charge for coffee and a muffin appeared as $35. Apparently, I had accidentally debited my snack before my paycheck cleared and my bank decided to make a pretty penny off my error. How did they do it? Through overdraft protection.

Most banks automatically (i.e., sneakily) enroll their customers in an overdraft protection program. When you overdraw your account by debiting more than you have available, your bank "protects" you by covering the difference. Think of it as a short-term loan. They pay for the rest of your purchase now and you pay later. But instead of your typical interest rate - say, 20% APR on an average credit card - they charge you 30 bucks or so. In my case, I paid 500% in interest - five times the original amount of my purchase.

Banks call it a convenience. But the truth is, it's just a way for them to make money. Fortunately, there's a way to avoid the whole problem. Make it a habit to keep track of how much is in your account. I learned the hard way.

By no means am I trying to deter you from using debit. Sure, you have to be careful. But if you're addicted to plastic, debit is a step in the right direction. It helped me pay down my own debt by encouraging me to (most of the time) spend only money I really had.

Of course, if you're drowning in debt, you might not have a lot of flexibility when it comes to spending. Debt is a catch-22 - the more you have, the more you have to continue adding. When all your money is going to creditors, you don't have much for yourself. But not to despair. While it might seem impossible now, eliminating your debt burden is within your reach - you just need a little help.

At DebtStoppers, we can identify a bankruptcy plan that meets your needs with a free personal debt analysis - whether it's an affordable repayment plan or a way to discharge your debts immediately. Remember, bankruptcy is your legal right as a U.S. citizen. When you file, you'll be protected from creditor actions while you find a fresh financial start. And if you have questions or concerns, don't hesitate to bring them up to one of our Chicago bankruptcy lawyers. We'll get you all the details you need upfront - and at no cost. Unlike with your bank, there's no catch -- just relief.

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