As a credit card user who takes advantage of rewards programs while paying on time, I was intrigued when a representative from a prepaid debt card company approached me about supporting Financial Samurai and sharing more their product.
As someone who has mainly used credit cards since college, I was curious to know what the benefits of a debit card over a credit card were.
Let’s talk a little bit about the benefits of a debit card over cash and credit cards, as well as any detriments.
Debit Card Benefits
1) Protect yourself from yourself. The most important benefit of using a debit card is that once your account goes to zero, you aren’t able to spend. If you’ve only got a debit card in your wallet, you will theoretically never spend more than you have, which is a very healthy thing in this age of consumerism. You can load up your debit card by a certain amount a day or a week or a month, and only spend that amount you can load. Further, there’s usually a maximum debt card balance as well.
Th U.S. personal savings rate has never been very high in the history of America. With the COVID-19 pandemic in 2020, the savings rate has shot up to about 11%. However, to achieve financial freedom, I encourage everyone to save closer to 20% or more of their after-tax income.
2) Peace of mind with insurance. The second benefit of a debit card over cash is insurance. Instead of carrying around a couple hundred bucks in your wallet, just carry a debit card. If you get jacked on the streets while shopping, you can rest assured the robber won’t be able to use your card, and if they do, you have the debit card issuer on your side.
I never recommend anybody ever put up a fight with a mugger by the way. Your wallet/purse is not worth injury or your life, especially if you have a replaceable debit card. There was one time I was foolish enough to stand up to muggers while on a business trip to Beijing. I could have easily disappeared and never be heard from again. My debit card refunded all my money. If I knew they would, I would have handed over my debit card and its code right away!
3) Rewards programs. Just like with credit cards, debit cards also have rewards programs. For example, the ACE Pink Prepaid Debit Card’s award to the consumer is that it donates a portion of all revenue to help fight breast cancer – a total of more than $350,000 in the past two years. You should shop around for various rewards benefits.
4) Convenience. A debit card can be used for online transactions, ATMs, and anywhere that Mastercard and Visa are accepted. Essentially, the debit card is a fantastic cash replacement for most transactions, except for when you lose NCAA tourney bets!
5) Something interesting to talk about. Let’s say you are rocking a pink debit card that supports fighting breast cancer. You bust it out at a bar and keep the tab open. Who knows, you might be able to start up a conversation with someone just by nature of your debit card. When we’r sitting around the table about to pay a bill, we’ve all talked about the various benefits of our cards before. A unique debit card is a conversation starter.
Debit Card Disadvantages
1) Protecting Yourself From Yourself. If you are at the BMW dealer and really want to splurge, you might only be able to buy a set of wheels instead of the whole car with a $10,000 limit from ACE or any other card. That said, I’m sure if you demonstrate your financial muscle, they’ll increase your funding.
2) Men Mock Men. If you hang out with a bunch of unruly, insensitive dudes, they might mock you for being a good guy and carrying a pink debit card. If you’re too insecure to use it, then you best keep it hidden or use cash or a manly credit card instead.
3) A Card Is Still A Card. The reason why paying in cash is so painful is because cash is real, and a debit card is less real. Although you can’t spend more than you fund in your debit card, you can spend it all if you are weak.
4) Fees. Debit cards can charge $10/month on average for it’s use. The good thing is that if you are going to the ATM machine several times a month, that cost negates out.
A Debit Card Is A Good Cash Alternative
I’ve never really thought about using a debit card until now. Having been jacked at gun point in a strange land before, I’m hesitant to carry more than $100 in my wallet.
If I could carry zero cash in my wallet and just use a debit and credit card, that would be the ideal scenario. A debit card is a useful tool for many of the reasons stated above. Just remember to spend responsibly!
The key to financial freedom is to save aggressively, spend within your means, and build as much passive income as possible. The longer you can stay disciplined with your finances, the stronger your finances will become.
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