Stay Out of Debt Using Your Debit

June 13, 2008 By Tisha (Kulak) Tolar

Credit card debt is probably one of the most talked about subjects in recent months. More and more consumers are finding it harder to pay the bills and keep their credit rating to the good. Advice is abundant on the topic of paying down debt and reducing reliance on credit cards, especially when it comes to daily living expenses. Many more consumers are opting to pay off and close the accounts of their traditional credit cards. However, closing all of your accounts can have a negative impact on your credit score. It will reduce your line of credit and may look like a bad thing on your credit report.

 When creating a new financial plan, you should consider keeping your traditional credit cars strictly for emergency and credit boosting purposes. Plan only to use your debit card that links directly into your bank account and nothing else for purchases. You will be less likely to overspend as you would with a credit card with a higher credit limit. Debit cards only allow you to spend what you actually have in the bank. You may be more cost-conscious knowing you have cash limits instead of a line of credit.

 If you use your debit card like a credit card, it is essential you keep up with your purchases and stay on top of your expenses in your checkbook. This is especially true if you were not very adept at tracking your spending when you used credit cards and found yourself in over your head in credit card debt. Do not rely on online bank statements either. The online statement does not always show an accurate view of your real time account information and can lead to overdrafts, which often carry harsh fees. Can you imagine purchasing a pack of gum for $35? Well, it is possible if that gum purchase puts you over the amount of available funds you have in your account. It would be wise to talk to your bank representative to have an overdraft protection plan put into effect, should you accidently go over your limit. Overdraft protection can come from a linked savings account you have at the bank. Some banks may still charge a fee, usually smaller than an overdraft penalty, for the convenience of the transferring of funds.

 If you honestly know that balancing a checkbook is not your forte, make a point to have an unrecorded cushion of money that you do not factor into your checkbook balance. For example, if you have $500 in your checkbook, subtract $100 from the balance in your checkbook but do not withdraw the money. Make a note to yourself that the $100 serves as a cushion so you will have reference in the event you forget what you’ve done. Use your monthly banks statements to check your work each month and only rely on your online statements to check on available funds.

 Using a debit card instead of a traditional credit card, can help you considerably to manage your money. Learning how to track spending and keep tabs on how much you are spending is key to gaining financial freedom, as well as practicing good financial management.

Posted in banking, debt, financial planners, financial problems, personal behavior, personal finance basics, saving money, shopping

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