The debit card option
For consumers with bad credit, getting quick cash access from debit cards is a priceless advantage. Credit lenders are stricter these days. After having faced the lending crash of the recession, many lenders are closing their doors to even moderate-level scorers. That leaves few options for people with bad credit and many turn to the debit card option for purchases. The debit card is useful because it has the “Visa” or “MasterCard” logo and is accepted by merchants who accept credit cards. Using a debit card also helps consumers manage a budget. By limiting purchases to the total in the funding account, consumers don’t have to worry about going over limit or incurring fees. It’s a great safeguard against more fees that can eat away at savings.
The downside of debit cards
There are some downsides to using debit cards, though. First of all, there are annual fees charged to consumers. An annual fee is normal, but some debit card providers charge more fees than others. There can be start-up fees that eat away at money. For example, the GoNow debit card offers the services of a bank account on a debit card, but charges $14.99 monthly and a $49.99 start-up fee. That means that if a consumer deposits $100 to the card, 65% of it is gone in the first month.
There is another downside to debit cards. Visa, for example, makes billions of dollars each year from pennies it charges to merchants every time a customer pays with their debit card. These fees are called “interchange fees” or “merchant fees.” Andrew Martin, of the New York Times, said, “Critics complain that Visa does not fight fair, and that it used its market power to force merchants to accept higher costs for debit cards. Merchants say they cannot refuse Visa cards because it would result in lower sales.” According to a study done by the US Government Accountability Office, consumers pay higher prices for items because more merchants are building in the interchange fees into retail costs. It’s illegal to directly charge debit card users added fees, but adding interchange fees into the actual cost is not illegal. Consumers looking for fast cash may be surprised when they realize how much of their cards is going to the issuer and not creating more buying power for them.
Despite the pitfalls
Despite the bad news, there are still some better debit card options available. Experts cite that consumers should be looking for cards with no application fee, no monthly fee and low annual fees. Every debit card issuer charges an annual fee, but the fees range widely. Some charge $14.99 while others hike the cost up to $69.99. It’s best to do a search and compare various options. The application and monthly fee both can be factored out of the equation with some searches.
Those with bad credit
Those with bad credit may have no option but to start off with a debit card for credit card purchases. They aren’t bad products, they just have to be managed closely to avoid wasting money. Consumers looking for a quick cash option with their debit cards have to be even more vigilant before picking a card. They may be harder to find, but good debit card products are out there.
