Debit card dependency could trigger overdraft fees

Drake University senior Charley Magrew is careful when using his debit card after seeing too many of his college friends get socked with fees on overdrawn accounts.

"If I use it to buy books, go to the grocery store or make a run to Target, I'll check my balance online," said the 21-year-old from St. Louis Park, Minn., who has had a debit card since age 16. "It's crazy how fast it all adds up.

"I definitely use it a lot. It's a convenience, but people need to respect it."

Anyone who depends heavily on a debit card for purchases should be forewarned - at $25 and $35 a pop, overdraft charges can add up.

People spend about $17.5 billion each year in overdraft fees, according to estimates by the Center for Responsible Lending, a consumer group that analyzed data on overdrafts. About 45 percent of overdrafts are attributed to using a debit card or taking out cash from the ATM, according to the center.

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Why the interest in prepaid debit cards?

Prepaid debit cards are getting more popular all the time in the UK. They have been described as a ‘credit card without debt’, but what can we expect of the new prepaid debit card coming to a wallet near you?

A prepaid card is not a new idea. There have been prepaid phone cards, prepaid sim cards, and prepaid gift cards for a number years, and the concept of the prepaid debit card is just the same: you load up a card with money which you can then use at retail outlets or with merchants online. You can also use it to top up your mobile, pay your bills or withdraw cash at an ATM.

A prepaid debit card comes from Visa or MasterCard, so it can be used pretty much anywhere in the world.

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The Long Reach and Implications of Credit Card Marketing

Since the 1960s, credit card companies have been investing tens of millions of dollars a year in “training” us that we can’t live without their cards. It started with “just for emergencies,” the still-popular “just in case” and “ease of financial planning” to the point were one out of seven Americans now has 10 or more of them.

It’s also been so long ago that few people still remember that Visa used to be called Chargex and MasterCard was called MasterCharge. But then – those names sounded too much like a bad thing. Both of them kind of sounded like debt, and that’s the last thing they want us to think.

But their marketing goes a lot deeper and is a whole lot smarter than the current Visa ad campaign that “Life Takes Visa.” Well, life takes cash, too – but fewer and fewer people have any of that, so it’s not really a stumbling block to Visa anymore.

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Be smart with your credit card

Credit cards have so many variations that it is important to get one that is suited to your needs. In particular you need to get one that will fit your spending and repayment habits. If you don’t the card company will grab your cash in terms of interest or charges.

The best use of a credit card is as a way to delay payment. If you do end up paying interest, then you should shop around – even change card – to get the best deal, i.e. the lowest interest rate. You can even have more than one card and use them for different purposes.

If you are regular spender, but will always clear your balance in full every month, then you are not interested in the interest charged for outstanding debt on the card – because you will never have to pay it – that is, unless the card has no interest-free period at all.

That’s very unlikely because most credit cards only ask you to pay what you’ve spent by the due date on the statement, with no interest added until after that date. You can therefore get up to 59 days interest-free if you spend on exactly the right day.

If you pay up in full every month, you should look for a card that has no annual fee and gives you something back – such as cash back or a reward scheme. These come dressed up differently, so it will depend where, when and what you want from your rewards as to what scheme you go for.

A sure way to make certain you always pay your outstanding balance in time is to set up a direct debit for the full amount each month.

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Credit card debate heated

Some call it legalized loan-sharking. Others insist it's the only way to ensure all Americans have access to credit.

In either case, the lending practices of credit card companies are coming under increased scrutiny these days. Congress is considering legislation that would curb companies' ability to raise interest rates on cardholders' unpaid balances and to charge interest on late or over-the-limit fees.

A growing chorus of consumers complain that the nation's soaring credit card debt is more a product of banks preying on the vulnerable than Americans' careless management of personal finances.

The court of public opinion already appears polarized on what critics call predatory lending practices - companies charging exorbitant interest rates and penalty fees.

"It's not illegal, but it's very unethical," said Richard Cook, a former federal government analyst and author. "It's legalized loan-sharking."

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