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While not commonly discussed, debit card debt can still occur. Debit cards allow you to spend money directly from your bank account, making debt less common but still possible.
This guide will delve into the essentials of debit cards: their function, how they differ from credit cards, how you might incur debt with them, and where to seek financial advice if you do.
If you know how credit or charge cards work, you’ll have a good idea of what a debit card is. It’s a plastic card you can use for purchases instead of cash.
Your debit card is usually provided by your bank. Each time you make a purchase with your debit card, funds are withdrawn directly from your linked bank account.
You can also use your debit card to withdraw cash from cash machines by entering your Personal Identification Number (PIN) and accessing your account funds.
Though similar in appearance and function, debit and credit cards have key differences. Both can be used to make payments and often carry similar logos, with the same organization sometimes providing both types of cards.
The primary difference is the source of funds. A debit card uses your own money from your bank account, reducing your account balance with each transaction.
Conversely, a credit card allows you to borrow money from the credit card company. Each time you use a credit card, you take on debt that must be repaid, typically with interest if not paid in full each month.
Debit cards are not intended for borrowing, but debt can still arise. Payments made with a debit card draw from your own bank account, so you’re not borrowing for the transaction.
A debit card functions similarly to cash but with added security. However, making a payment without enough funds can cause you to go overdrawn, incurring fees and charges.
Overdraft fees and interest can quickly accumulate if not promptly addressed, especially with continued spending. In some cases, even declined debit card transactions can result in fees, pushing you into debt.
This type of debt can harm your credit score and lead to the loss of account benefits or rewards.
Common Reasons for Debit Card Debt
No, they do not. Credit card usage affects your credit score as it involves borrowing and repaying money. Debit card transactions, which use your own funds, do not influence your credit history or score.
Tips for Managing Debit Card Debt
If you’re dealing with debit card debt and need financial advice, MyDebtPlan is here to help. Our advisers are ready to listen, provide guidance, and present debt solutions.
Contact us today at 0161 826 0585 for immediate, confidential, and free debt assistance.
Tell us about your current debts and one of our experienced and friendly advisors can help you get the ball rolling.
Dependant on your circumstances and financial situation, we'll let you know if an IVA is a potential solution for you.
If you qualify for an IVA, we will take the necessary steps to set up and arrange this for you.
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