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Debit cards seem like such a good idea and in some ways they are. You don't pay interest. You only use the money in your checking account so there's built-in discipline. For some transactions, like hotel reservations and airline tickets, you can't use cash so a debit card is a good option. But there's a dark side to debit cards. Mary Hunt wrote a blog post about this. It's a long post so I'll summarize a couple of good points she makes: "Banks now allow customers to overdraft their accounts using their debit cards at check out as well as an ATM machine. Here's my beef with that: Even though your bank has the ability to stop you from swiping your debit card to pay for a $5 hamburger when you have only $4.94 in your account by declining the purchase-they don't! Banks now allow the purchase, citing "convenience for the customer" or not wanting to embarrass or interrupt the flow of life for you their valued customer, while gleefully slapping you with a huge penalty if your do not have an overdraft protection account (which really is a credit card attached to your checking account) or you have not arranged to have your savings account tapped when you inadvertently go over. This practice has become so widespread-which means banks have discovered this new income stream of penalty fees-in 2005 approximately 46 percent of all bank overdrafts were triggered by debit card (also known as POS or point-of-sale in the industry) transactions or ATM withdrawal, which paper checks triggered 27 percent of overdrafts. Banks collected 17.5 billion in overdraft fees in 2005 alone." That's a huge amount of fees: $17.5 billion. In other words, it costs a customer $2.17 in fees for every dollar borrowed when there is a debit card overdraft. Hunt describes a couple of horror stories and thinks debit cards don't have the same protection as credit cards but that hasn't been my experience. I've had my debit card number stolen twice and had charges against my account but the bank removed them the same day and I didn't have to pay a fee. I've learned my lesson, however, and try to use my debit card sparingly. I like those times when I check my credit card balance online and see that there are hardly any transactions for the week because all I've used is cash. It makes money management more simple. Banks make money when you use your debit card. The merchant pays the bank a fee for the privilege of processing your card. This also applies to transactions where you enter your PIN number. This is one of the reasons I like to use cash. Why should a bank profit when I buy something at the


grocery store? Cash has other advantages too. As Mary Hunt says: "Cash is not dangerous or unsafe, but it is inconvenient and that's a good thing. You have to plan ahead, you have to stop by the ATM to get the cash before you go to the store. And that's even a better thing because it forces you to notice how much your are spending. It forces you to engage your brain in how much you are spending and what a pain it is to count how much you have before you go into the store. Look, if you really want the entire contents of your checking account in your pocket when you go grocery shopping for example-go to the bank and take out every last cent and carry it around with you. What? Too tempting to spend it so you won't have enough to cover your bills? Bingo! And that's how it should be." Cash rules.

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Article Source: http://EzineArticles.com/?expert=Anita_Ashland

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The Safety and Convenience of Debit Cards  

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