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Helpful Guide: How to get help with Debit Card Debt.

Our debit card is meant to be our trusty friend regarding money matters. When we need to purchase goods or services, we know this reliable piece of plastic won’t let us down. You feel secure knowing that whatever you spend on your debit card is your money coming directly out of your bank account.

This supply of money isn’t endless, and sometimes we can get a little carried away with our spending, especially with money we don’t have in our bank account. However, even friends can let us down. Careless use of our debit cards can get land us into debt.

Follow our comprehensive guide as we answer all your questions regarding debit cards, how debit and credit cards differ, how you can get yourself into debt with a debit card, and what steps or debts solutions are available to you so you can get yourself out of debit card debt.

Find out more on how you can take charge of your debt problem.

Debit card: What is it?

If you have a current account with a bank, you will likely be issued a debit card. A debit card is used for you to make transactions with, whereby the money is automatically taken out of your bank account.

Your debit card provides you with the flexibility to make transactions remotely and allow you to withdraw money from an ATM or cash machine using your debit card. All you will need to do is enter a Personal Identification Number (PIN), and the cash machine will feed the requested cash out to you.

How is a debit card different from a credit card?

As we discuss debit cards, it seems logical to talk about the other piece of plastic in money, the credit card. Credit cards have always got a lot of bad press. We often associate credit cards with borrowing and debt. Abusing your credit card can land you into a lot of debt; however, using it correctly can work in your favour. So how does it differ from a debit card?

Similarities

Visually, both credit and debit cards look the same. They are both rectangular-shaped plastic pieces that include your name and identification numbers unique to that card. Even the back of the cards looks similar as they have a magnetic strip used to swipe or insert your card in at any participating card machines or merchants.

Most recently, credit and debit cards now have a contactless payment function, making using your debit and credit card.

During the Covid-19 Pandemic, people were encouraged to use the contactless function on their cards to limit contact with people and stop the spread of the infection. The contactless spending limit has now increased by £100, making frivolous spending more straightforward.

Differences

Credit and debit cards may look alike, but some uses are far from this. Look at some of the differences below:

  • A debit card uses funds from a bank account, and a credit card uses funds from an authorised credit card company in which the money would need to be paid back later.
  • A debit card usually has an agreed overdraft limit connected to the customer’s bank account if there is any overspending on the account. However, a credit card has a specific amount of credit attached to it, and if the customer tries to spend more than the spending limit, the card transaction is rejected.
  • A debit card does not require a credit check before a customer is issued with it; however, with a credit card, a credit check is needed to ensure that the customer can repay the money they have borrowed on the credit card.

Read more about how to get out of credit card debt here.

How do I get into debit card debt?

Unlike credit cards, debit cards aren’t meant to be a method of borrowing. With debit cards, you tend to make payments on the funds you already have in your bank account. It is like having cash on plastic.

However, debit card misuse can happen when you pay for a product or service and there isn’t enough money in your account. This means your account will be overdrawn, which is when the issues start to arise.

Being overdrawn will mean that fees and interest charges will be added to your account. They can rapidly increase, especially as you are already struggling with the insufficient funds in your bank account.

How can I cut my overdraft charges because of my debit card debt?

Did you know that the interest rates are sometimes almost double that of most credit cards when you are overdrawn on your account? So as much as debit card debt may appear to be a slight pinch in your account, it is worth checking the fees and the interest you are getting charged as it might be burning a hole in your pocket.

This is why it is essential to try and pay the debt as soon as possible. Here are a few pointers to help you do this:

1. Speak to your bank

Communication is key. If you are experiencing financial difficulty, you can speak to your bank and ask for help. They could offer you the following:

  • Reduced overdraft interest rate
  • Interest being cancelled
  • A repayment plan to reduce your overdraft balance
  • A personal loan to help you pay back the overdraft in affordable monthly payments

2. Crunch those numbers and budget

Do you know how much debt you owe? It is firstly important to understand how much you owe. Having a clear idea of how much you have become overdrawn can allow you to budget and pay the debt off.

Meticulously, go through your income and expenditure and see if you have any disposable income to pay back the overdraft. If you have nothing left at the end of the month, it is time to cut down on your spending.

Download our handy budget planner and fill in the parts you need to understand your finances better.

The next step is to scrutinise your bills and outgoings. Do you need a vast array of TV subscriptions? Can you live without eating out as much? Are certain luxury food items a must in your grocery shop? Cutting back and making those small savings adds more money into your pocket to help you pay off your overdraft and could allow you to save more.

3. Do the Maths and use your savings

Emergency savings or a ‘rainy day fund‘ is always a good thing to have, especially when unexpected costs arise. We don’t often advise you to dip into your savings, but an overdraft isn’t practical. Why would you want to pay out money in fees and charges when you have the cash to pay it off?

Quite often we need think practically and do the Maths. You might feel like you have the security of an emergency fund, but here’s the Maths bit:

You have a £1000 overdraft, and the overdraft costs £30 per month. In a year, your overdraft costs a whopping £360 if you earn only £10 on your savings account a year. Which one is better?

No brainer. If you use your savings to pay off your overdraft, you will be £350 better off as you won’t have an overdraft incurring charges leading you into more debt.

Once you have paid off your overdraft, you can start saving again for that emergency fund and, this time, hopefully, be a little bit savvier with your spending.

Find out more about clearing your debt.

4. Move to a 0% money transfer credit card or change banks

Do this only if your current bank doesn’t provide you with a reasonable overdraft interest rate.

Suppose you can get a 0% money transfer card. It is like a credit card, but it will charge you a one-off fee, however during the 0%, you won’t have to pay any interest. However, it is crucial to understand that you must pay the amount back to clear the card before getting charged interest.

The best way to do this is to set aside some money each month, ensuring at the end of your 0% period, you have enough surplus cash to pay back the card. The key is to be disciplined because if you don’t set that money aside, you could be left with paying the credit card at a much higher interest rate after the 0% rate has finished.

As well as 0% money transfer cards, certain banks offer overdrafts that are significantly lower than what your bank is charging you. Shop around as app-based banks have very competitive rates compared to the traditional high street banks. Quite often, it is half the interest rate your banks are charging.

Find out more tips on how you can beat the overdraft charges and get you out of debit card debt.

Does a debit card debt affect my credit score?

No. A debit card does not affect your credit score. Financial information like how much money you have in your current account, what your spending habits are like, what transactions you have made do not generally get reported to credit reference agencies.

It is your credit cards that your credit reference agencies are more interested in as this is money that you have borrowed from lenders. Your credit card history provides future lenders and credit reference agencies an indication of how well you manage money and how sensible you are at paying it back.

That said, a debit card may not affect your credit score, but it may have an unfavourable impact on you getting credit in the future. This is because you have rarely applied or used credit, so credit reference agencies do not know how well you will be when borrowing money and paying it back.

Find out more about how to improve your credit score here.

I am in debit card debt. Where can I get help?

Debit card debt can usually act as a catalyst to get you into more debt; however, it doesn’t have to be. If you find yourself in debt after using your debit card, then take note of the strategies used in this guide before you are straddled in a sea of debt.

Taking steps to manage your debt problem will help you stay out of debt in the future. However, don’t suffer in silence. If you are struggling with your finances and need support, then one of our advisors can help and guide you to finding the right debt solution for you.

If you have debts of over £5,000, and you're struggling to repay them, get in touch today!

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