'spain' this to me, please

cheloneJuly 13, 2006

I've been watching Oprah's "Debt Diet" this week. I am alternately appalled by the ignorance and in awe of the courage the 3 couples have demonstrated by "going public"

We don't have an ATM card or a debit card. I understand ATM cards. But what's so great about a debit card? aside from not having to fill out a check why are they so popular? One couple had to cut their's up... and it made me realize that I don't really understand what they are or how they "work".... (talk about ignorant, lol!)

Would one of you good people please provide a primer on them for me? :)

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I've never had one, but here is what I think the advantages and disadvantages are:

Advantages of a debit card over a check: Less hassle to use than a check; the money comes out of your account faster; a check can be written for more than your balance and bounce but a debit card limits you to your balance.

Advantages of a debit card over a credit card: no interest; doesn't allow you to go in debt.

Advantages over an ATM card: cheaper to use for point-of-sale purchases.

Disadvantages of a debit card: If lost, stolen, or compromised, it could allow direct access to money in your bank account. The banks promise to return you the money, but you could face huge hassles while waiting.

    Bookmark   July 13, 2006 at 7:17PM
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I'll "splain" it to you. I use my debit card all the time since I don't a)want to carry a lot of cash and b) run to the bank every time I need cash. It works just like a credit card, but it comes straight out of your checking account and you need a PIN. Just easier for me. My bank doesn't charge us a fee to use it, but some do.

Those couples on Oprah are not living in the real world. I wish Oprah had given tips to people who need to get out of debt for reasons other than overspending on clothes and having too many cars.

    Bookmark   July 13, 2006 at 7:22PM
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I will join you in saying that we do not have an ATM card or a debit card... no reason for us to have them to date.

Cash, checks and credit cards work just fine...

    Bookmark   July 13, 2006 at 7:56PM
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Thanks for "splainin'" it (sorry for the omitted L).

Here's what I don't "get" (really dumb): "works just like a credit card"... but it provides direct access to your checking account; this means that using it is AUTOMATIC (like a credit card)? but it also means that you must adjust the balance in your "checkbook" immediately... just the same way you would if you'd written a check?

About debit cards and "refusal"... . So, you go to the grocery store and have 100.00 worth of groceries in your cart... you write a check for $100 and it bounces you get hit for the "fee". If you use your debit card and the amount is "overdrawn" your card is simply "declined"? what do you do then? (use your credit card? ;)!)

So how does a debit card "help" someone who is incapable of balancing a checkbook? do the "declines" show up on your statement? or do they simply enable and endless cycle of "blindman's bluff" for those too inept to manage their money... with NO consequences ever? Is this scenario the one that required that one of the couples cut their debit cards up?

Blackcat, what other reasons find people in way over their heads? what sorts of situations would you like to see addressed?

    Bookmark   July 13, 2006 at 8:05PM
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A debit card is exactly like a check, except as explained above, the transaction process (supposedly) *immediately* checks the amount of the purchase against the account balance to confirm the funds are there.

Yes, if there aren't enough funds, the card is declined. The store isn't out $100 in groceries like it would be when a check bounced 10 days after-the-fact and the customer is long-gone.

Debit card transactions appear on the account statement exactly like a check, listing the date of the transaction, the merchant, and the amount.

Since it is electronic, the funds are drawn out of the account within 1 or 2 days after the purchase. There's no delay like there is with a paper check (the merchant has to endorse the check, take it to his bank for deposit, his bank sends the check to a clearinghouse which then processes and posts it to your bank).

One should of course deduct the purchase from the check register exactly like a paper check. For people who have trouble keeping a written check register, but have online access to their bank records, this can help them keep up with what is their "working" account balance. They still need a bit of buffer-room until pending transactions post, but not as much.

    Bookmark   July 13, 2006 at 8:43PM
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OK, so I'm now "up to speed" with the whole debit thing. Thanks!

BUT... I see that this debit card system does little more than allow those who handle bank accounts poorly a "free pass". They now have "carte blanche" to run the debit card through the machine howevermany times they choose and there will be a "declined" message. No one loses any money, the only thing "lost" is some pride... (right!).

I NOW understand why the couple was required to cut their debit card up! NO CONSEQUENCES.

I don't have one. I am willing to write a check. If the check is "questioned", I'll use a credit card! Using someone else's money for 30 days is fine with me... and I'll pay the balance.

    Bookmark   July 13, 2006 at 9:15PM
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A debit card is not a free pass. Why would someone keep swiping it if they know they have no money?? They'd be more likely to just write a check and give themselves a grace period of a few days for the check to clear.

I don't remember why the couple had to cut up their debit card since I saw those shows the first time around, but maybe actually handling cash makes it more "real".

As for people being in debt for other reasons, there are many valid ones, such as medical, downsizing, etc. Of course people should have savings to cover unexpected happenings, but I do feel for people who find themselves in situations they may find hopeless. I'm not really sympathetic to those who have loads of cars, clothes, and go on an annual vacation but cry poverty.

    Bookmark   July 13, 2006 at 11:06PM
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I suppose if someone wanted to be humiliated by always being rejected, more power to them. I'm sure the bank will eventually take away their free toaster!

    Bookmark   July 13, 2006 at 11:11PM
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i use a debit card exclusively. the ONLY time i carry cash, even a single dollar, is if i am traveling. when in town i use my check (debit) card. every fasst food establishment here has now stopped accepting checks entirely. they gladly accept your debit or credit card though.

a lady that useds to work with us NEVER wrote down anything in her checkbook, she had not balanced her account in several years. she kept getting overdrawn because she would use her card and forget that she had. then she would write out check and they would bounce. the bank finally took her card away and refused to allow her to have another. after that, she no longer bounced checks but she still refuses to balance her checkbook.

the only way a debit card can hurt you is if you abuse it. like anything else, it is the individual, not the system that causes problems.

    Bookmark   July 14, 2006 at 10:50AM
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I use my debit card way more than checks. Most regular bills are on autopay so it is just a couple odd checks I write each month, like for a tree being cut down, something unusual like that where I don't have a regular account.

I like heading out on my bike for errands/shopping with just the card - no checkbook, pen, cash, change, etc. Easy. Enter the receipts when I get home.

    Bookmark   July 14, 2006 at 12:54PM
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Nowadays, a lot of banks will let you overdraw your acct w/ a debit card. Then they hit you w/ fees.

Another problem is that often, a gas station (or other) will place a 'hold' on a certain amt--like $75--when you use a debit card; this amt stays held until the real amt--say $40--is cleared. Causes problems for ppl w/ low balances--they may run out of money even tho they haven't spent it all, because of the hold.

Lastly--and the main reason why i don't use one--every so often you hear about debit card numbers being hacked (happened recently at the sam's club gas pumps nearby). You use the pump, swipe your debit card, and someone gets access to your bank acct.

Honestly, I don't see the point of using either checks or debit cards for ordinary purchases. I put most everything on credit cards (except lunch and small amts) and pay it at the end of the month. I get cash back/reward points, my checking acct is safe, and I don't have to bother scribbling in a check register or producing ID.

I'd never go anywhere (other than a walk) w/o cash. What if you break down and the towtruck guy wants cash upfront? He's not likely to have a debit swiper on his truck.

    Bookmark   July 14, 2006 at 1:21PM
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So you guys without debit cards are the old fogies in the grocery line slowing everybody down by writing checks even thought they can barely see. :)

But seriously, I really don't see the point of writing checks anymore. I probably write one every other month to somebody who doesn't take credit/debit cards. My recurring bills are all paid online throught my bank's website.

My system is to charge everything - and I do check my balance online daily. Then I pay it off at the end of the month, plus I get a nice list of where the money went last month that goes into my Excel budget spreadsheet.

Also, I didn't know there was a different between a "check" card and a "debit" card.

    Bookmark   July 14, 2006 at 1:45PM
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Oh, I am one of those technologically-bound people...
I have a debit card. I use it for almost everything. I have a couple of credit cards, $0 balance, that I don't use---those are for emergencies.
I don't EVER balance my checkbook. I look at my bank account online at least once a day, no joke, most days. Sometimes I don't look at it for a few days, like when I'm on vacation. I always know when I am leaving the house to shop, or for vacation, how much money I have in my account.
I almost NEVER carry cash. I travel within the state every day, and have only needed cash a couple of times---for restaurants that did not accept anything other than cash or check payment.
In the five years that I have been operating this way, I have never had a bounced check or declined debit transaction, nor have I ever had a negative balance in my account...

    Bookmark   July 14, 2006 at 1:49PM
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Hey Chelone-
I never write checks. I always use my debit card. This is my thinking....DH uses the ATM - and when he does he pulls out way too much $$ (that's a point on contention w/us) - and he spends it. Why?? B/C he has it. If I go to he bank and withdraw $20 but only need to spend $8.50 - well than I'll end up spending the left over just b/c I have it. I can track my spending - I've never been the best at recording check transactions. Writing chcks for everyday life seems so antiquated. When I see someone pull out their checkbook at the market - I wonder why they still use to paper checks instead of a check card. But to each his/her own.

    Bookmark   July 14, 2006 at 2:31PM
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I carry more cash now than I did several years ago, mostly because I don't like to use credit cards or debit card for eating out / fast food. I often have to go to the store for my grandmother on short notice for one or two items and may pick up an item for myself, and pay cash rather than put that small amount on HER credit card. I'm carrying $133 at the moment, but about $40 of it is tagged for a prescription refill due in a few days.

I use credit cards mainly for online purchases.

Larger grocery purchases, clothes, lawn supplies, gasoline, etc. are by debit card. I used to put all that on credit cards (which are always paid in-full). But since I have to pay the credit card anyway, and checking account interest rates are abysmal nowadays, I figure use the debit card and get it done in one step.

Other recurring and 'statement' bills such as electric, phone, and insurance I pay via online/electronic billpay service. Nothing is scheduled for automatic payment except my mortgage. The autopay amount is for the standard amount, but I always edit the payment before it triggers to add extra principle. The autopay is in case something happens like illness or other emergency and I don't have opportunity to edit the payment.

Checks are used only for the very few payments that *require* additional documention or submitting a remittance slip, such as car license renewal at the DMV office.

At one of my jobs, a business that handles a lot of cash, the teenager employees sometimes write a check for cash or a purchase. There was a young lady several years ago who bounced SEVERAL checks for insufficient funds. She never balanced her account. One day she advised me that she had closed the account and another check will bounce, and to let her know how much when it happens. Duhhhhhhhh. Another young lady had a similar situation in the last week. She had written the check, then closed the account several days *later*. She also never kept a register. The check bounced, passed on a closed account. I grilled her on why she wrote a check on a CLOSED account. She said "It wasn't closed when I wrote the check." By the way, her father was manager of the local grocery for a few years. He apparently either doesn't have much financial skill or hasn't made an effort to pass any to his children if he does.

    Bookmark   July 14, 2006 at 3:19PM
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I've never really understood why people with normal willpower would use a debit card over a credit card. I use credit cards for almost everything and then pay them off each month.

    Bookmark   July 14, 2006 at 6:22PM
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Thanks to every one of you who took the time to reply. Yeah, I AM one of the geezers who "holds you up" by writing a check... (do I get points for having everything filled out except the amount when it's my turn at Mr. Cash Register?!). I don't do any "on-line" payments... not because I don't have confidence in the systems banks use. I'm more worried that I'm too technologically inept to hold up MY end of the security bargain. I understand checking accounts and "the bills" are part of a monthly routine. I actually LIKE the process (would you be a love and shove my walker over here, please?). ;)

I asked the bank manager about debit cards today. She smiled and asked if I wanted one... do I need one? she laughed and said, probably not. I'm left with the feeling that people who understand sound money management prosper with either debit cards or checking accounts... those who are inept will bear the scars... a debit card simply costs less in the final analysis. But it does nothing to encourage sound financial management. So, I guess it's a "wash".

I have some cash in my wallet, but not very much. I tend to use my credit card for larger purchases. I'd rather use THEIR money for 30 days and then pay the bill in full. That's why I'm a "loser" in the eyes of those who administer my credit cards.

I'm ruthless in my assessment of "need and want". But that withstanding I am still deeply disturbed and very sympathetic for those who's reckless financial habits have so emprisoned them.

    Bookmark   July 14, 2006 at 8:14PM
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I was a bankruptcy attorney for over 15 years and the reasons people are in financial trouble ranged from job loss to being defrauded, medical bills, dysfunctional families who needed to be helped, alcoholism, drugs. Sheer stupidity also figures in there. I had clients who skipped mortgage payments to provide bail money to a friend, because they felt they were being good samaritans.
Needless to say, these people did not manage their money well.

    Bookmark   July 14, 2006 at 10:38PM
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One thing to keep in mind...while many debit cards have a logo on them from a major credit card company like Mastercard, and they will run through the machine like a credit card, you are generally offered none of the protection that the major card companies offer on purchases when you use it. So it's probably wiser to buy online or by phone with a real credit card, so you can dispute the charge if something happens. Likewise, use a "real" credit card with a "questionable" merchant (Bob's Acres o' Appliances) when buying something expensive that has a decent chance of breaking (computers and other electronics, etc.).

One other thing to keep in mind if you're a "wise" financial person: using a real credit card allows you to hold on to your money for an extra few days. Obviously, this only has value if your card is paid off in full every month. And don't forget credit card incentive programs, whether it's Discover card "cash back" or airline miles, etc.

    Bookmark   July 18, 2006 at 11:05PM
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One other thing: I would think three times about using a debit card to set up a recurring payment with an aggresive service like AOL, certain cable companies, monthly internet subscriptions, etc. If you use a credit card, if worse becomes worst and they still sock you for fees you know you've cancelled (see recent news stories about the scum at AOL), you can "lose" your credit card and get a new one issued with a different number, which automatically disrupts those debits.

Certainly be VERY careful about using your actual checking account and routing numbers. For example, I opened a new checking account with a $50 balance for purposes of securing a paypal account. If something bad happens, at most that $50 is tied up while a dispute or mistake is settled. I use the same account for wire transfers, watching it online and then immediately transferring incoming monies to a more "secure" account. If I buy something via paypal, I transfer money into the account and then make the payment.

    Bookmark   July 18, 2006 at 11:16PM
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We use our debit card as a mastercard because we get 0.5% cash back from our bank. We use it everywhere we would write a check (generally the grocery store and places like target).

We only really use credit cards for larger purchases. I think it's just a mental block I have about using credit cards for things like groceries that go back to the days when I was in grad school and our house took a year longer to sell than we expected and we were putting groceries and supplies on credit cards to make ends meet (and not able to pay off the balance). Psychotic? maybe. I just don't like the feeling that we're putting off paying for our monthly expenses even if it's just for 30 days, I like having cash in the bank to pay right away.

We could never live without an ATM/debit card, our bank has no branches that are local (USAA) but they do offer things like free checking (and checks!), the 0.5% rebate on mastercard debit purchases and even a little interest on the account.

    Bookmark   July 19, 2006 at 6:05AM
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I have used a debit card almost exclusively, but I am changing that since I got a Citi credit card that pays me 5% on grocery and gas charges and 1% on everything else. Does anyone know of a better card then that? If you do, please share the information.

I didn't use credit before because I didn't want to be a PITA to the people behind me in line, but most stores now take credit as easily as debit. The only exception I have found so far is QFC (Krogers). I never carry more than about $5 in my wallet. Last week I took my dog in for a teeth cleaning and was surprised to find that the vet won't take checks - cash or credit only. I write down my debit and credit purchases in my check register just as if I had written a check.

I too wish they had picked a broader mix for the Oprah show. The people had good incomes and finding the fix didn't seem to be terribly hard. I would rather see what people with low incomes and high bills are supposed to do. I was gratified that one of the financial counselors told one of the couples to pay off their credit card with the lowest balance first - without considering the interest. That is the advice I have been giving to people of my acquaintance for years, though obviously there are exceptions to that rule.

    Bookmark   July 19, 2006 at 1:44PM
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I don't understand how a debit card is any different then writing a check. A check takes longer to clear where the debit card withdraws the money immediately. There are no fees and you can't overdraw with a debit card. You can only take what is in your account.
I was told by my bank, that paper checks were going to eventually end. Even now, many banks will not return the checks to you unless requested. Some banks, such as credit card banks, do not return the checks to your bank. So you end up with a debit anyway.
The use of paper checks will be replaced electronically in the future.

    Bookmark   July 26, 2006 at 1:14AM
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"(do I get points for having everything filled out except the amount when it's my turn at Mr. Cash Register?!)."

Yes! :-)

Back in the old days, I used to do that since I was waiting in line anyway.

Some people don't even pull out their check books until they are told the amount. I'm sure these people live in a different and slower paced world than I do.

    Bookmark   July 26, 2006 at 1:56PM
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Don't know anything about the Oprah show thing, but I do know some other things:

>Debit card is exactly like a check
>You CAN overdraw your checking account when using your debit card. Example--you have one or several checks mailed out, then use your card to buy gas. The balance looks OK to the gas station but then the checks come in....bounce!

>Around here the banks charge $30. if you overdraw when your card is swiped. No decline (unless you're already negative). They pay the merchant, allow you to go negative balance and then hit you with the $30 PLUS interest until you get back to parity. The point is to get you to sign up for overdraft "protection".

>Many merchants and utilities are doing electronic fund transfers even if you think you are paying by check. In fact, my electric bill has wording to the effect "by sending us a check you are giving us permission to do an EFT". So might as well inititate the EFT yourself and get it done on your schedule. Plus, initiating the EFT yourself eliminates any possibility of coding error by the utility.

>Mailing checks to pay the bills is now considered a security risk. On line or other EFT is bank to bank and much safer.

>Smartest way to pay almost anything, IMHO, is with cash back or other reward card. Pay balance at end of month with EFT.

>Carry several forms of payment when shopping

    Bookmark   July 29, 2006 at 10:26PM
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