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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 Each time you make a purchase with your debit card, funds are withdrawn directly from your linked bank account.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 organisation 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.
Likewise, 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, My Debt Plan is here to help. Our advisers are ready to listen, provide guidance, and present debt solutions.
Contact us today at 0161 464 0870 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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Credit Score Pop Up Wording : An Individual Voluntary Arrangement (IVA) is a formal agreement with creditors to repay a portion of your debts over time, but it does have an impact on your credit score and it will be difficult to obtain further credit whilst on an IVA. Once an IVA is approved, it is recorded on your credit report and will typically remain there for six years from the date it starts.
However, it’s important to note this is the case for most debt solutions and your credit score will likely already have been affected by being in debt in the first place.
Once your IVA is complete you will get a fresh start to begin rebuilding your credit rating.
IVA costs are charged for the preparation of your proposal and the administration of the arrangement for the full term (usually 5 years) these costs are charged from the monthly contributions you make into the IVA and are not in addition. Costs will only be recovered on approval of your arrangement and once you commence making payments to it. The fees for preparation of the proposal to creditors and calling the meeting for creditors to vote on its approval are called nominees fees, the fees for running the arrangement once approved are called supervisors fees. There are also some expenses incurred in the running of the arrangement such as the registration fee and the statutory insurance that needs to be taken by law, these are called disbursements. For our arrangements, the total of all of these is £3,650 although this may be adjusted by creditors when they vote on whether to accept. No matter what the end total of costs come to, you can be rest assured that these will be taken from the monthly payment we agree with you.
