Pitfalls of falling in love with plastic

Not too long ago, I fell in love with the convenience of debit cards. Every time my shopping mood kicked in, I always kept the debit card handy. I was happy because it was accepted almost everywhere. And the best part was, there were no finance charges, monthly dues or late payment fees to think about.

For a while, it was my constant shopping companion. I did not have to stuff my wallet with big wads of bills. The cash just came right out of the card that was linked to my bank account. It felt like operating a faucet. All I had to do was turn it on and the money would just drip right out. This is cool, I thought.

Somehow, I was lulled into a sense of being wealthy, thinking I'd always have money in the bank no matter how many times I used the card. I became oblivious of my spending. Then my savings began dwindling much faster than they should have been. One day I realised there was hardly a fil left!

That's the time I turned my back completely on plastic money. And you can't blame me if I have to disagree when you say debit cards can lead you to the path of financial stability. In my case, it led me the other way around. It brought out the big spender in me.

But maybe it works for other people.

After witnessing the credit bubble that sent financial markets in a tailspin, many people have paid closer attention to their spending habits. At the same time, a new payment trend has emerged: consumers are now reaching for their debit cards instead of credit cards, to make those daily purchases.

Visa, one of the world's largest retail electronic payments network, reported last week that the number of debit card transactions in the Gulf Cooperation Council (GCC) states has already eclipsed those made through credit cards in the first quarter of 2010.

Banking experts say financially-cautious consumers are turning to debit cards to get a grip on their spending. Many believe that using debit cards is a great way to ensure they don't spend more than they can afford and that they have less risk of falling into a debt trap.

Sure, debit cards are a wonderful financial tool in the sense that it lets you carry your bank account in your pocket. You're using your own money, so there's no room for overspend — unless your bank allows you to keep spending even if your account is already empty.

But, as wonderful as it seems, a debit card can still be a cause for trouble. Here's how to avoid the potential pitfalls.

Make sure there are no annual and monthly service fees or transaction charges when you make purchases. Read the fine print. Ask the bank's customer service representative.

Remember the disclaimer

Remember the usual disclaimer: terms and conditions are subject to change without prior notice. So, expect policies to change anytime. With debit cards' rising popularity these days, you can't discount the possibility that extra little fees will show up on your bank statement one day.

Set a budget and make sure you don't go over it. Keep a diary of your spending. This way you will be constantly reminded how far away you are from draining your bank account. People tend to spend without restraint when they only have a piece of plastic in their hands, so it's wise to keep your spending in check — always!

Some people say debit cards don't get the same protection as credit cards, so treat it as you would your cash. Keep it where it's safe and don't share your PIN to anyone.

Most of all, don't kid yourself. Spending is still spending — whatever the card.