Cut Debit Card Spending

Debit cards seem very convenient, don't they? A lot of folks have told me that using a debit card is a good way for them to make sure they don't spend more than what they have in the bank. And the trend is growing: For the first time ever, Visa reported in May 2009 that its branded debit cards are now outspending Visa's credit card versions in total dollars spent.

All that seems like a good thing, right? Wrong! It's the opposite: Why? Debit cards are actually better for the banks than they are for YOU (to the tune of about $9 billion a year in fees alone!). I call debit cards the hidden trans-fats in your wallet. Need more reasons to ditch your debit card?

• Debit cards offer fewer consumer protections than credit cards. That means you don't have the same protection from fraud, theft or if your new gadget goes kerplunk if you buy something with a debit card.
  
  
• Debit cards are easy targets for thieves. And once that money's swiped out of your account, guess what? It's GONE! It can take weeks, sometimes months, to track down the source of the missing cash and get the funds back into your bank account.
  
  
• Debit cards have fees, too! Check your bank statement: There could be things like maintenance fees, overdraft fees, point-of-sale fees (which are like ATM fees, where you get charged for just using your card to shop), all of which eat away at your bank account (while lining the bank's fat pockets!)

Now that I've (hopefully) convinced you that debit cards aren't all they're cracked up to be, here's how you can break the cycle:

• Use credit cards for major purchases—especially travel. Find a low-interest, low-cost credit card that you can try to pay off the balance every month. That way, you don't accrue interest or fees. Your bank account is protected, as is your purchase. Also, look for cards that offer additional buyer's insurance at no cost.
  
  
• Get an ATM-only card. Yes, your bank still makes cards without the Visa or Mastercard logo on them! So request one. That way, you won't be tempted to use your bank card for purchases if you don't have the money in your wallet.
  
  
• Use cash. If you're using your debit cards for those daily purchases, stop! If you're gonna spend cash-like, you might as well just take out the cash from an ATM and pay for those items with cash! (Really!)

You may think breaking the debit-card habit is a toughie—and it is—but this is one lesson where I definitely practice what I preach. Make a list of your list of money hang-ups, and think about why you use debit cards: Are you afraid of charging up a storm with a credit card? But isn't it just as dangerous to pay overdraft fees and not have the money there when you really need it, say, to pay other bills? So take a step back, examine your budget, and get on a smarter spending path.

Sure, debit cards make it easy to pay for things readily, but it's almost TOO easy now. So think before you swipe. Use cash for the small purchases, and a regular credit card for the bigger buys. Your bank account will thank you!

Get more financial advice from our personal finance expert, Carmen Wong Ulrich!