Last year the popularity of the prepaid debit cards have surpassed credit card use in the US. People used their debit card over 25 billion times last year as opposed to the almost 22 billion credit card transactions. As these forms of electronic payment increased, the use of debit cards grew almost three times as fast.
However, between the average transactions between credit cards and debit cards the value or amount spent was in favor of the credit cards by far. The main difference is in the fact that a debit cardholder can only spend the amount of money that he has deposited into his account, while a credit cardholder can borrow up to his limit. Debit cards for that reason are appealing to borrowers who have a tough time controlling their spending and can not manage a credit card responsibly.
Over the last few years the amount of paper checks in use has dramatically decreased while (ACH) automatic clearing house payments have mushroomed. The definite trend is that people prefer to use electronic forms of payment because it’s easy, cost effective and convenient. Debit cards are really becoming the “go to” for making purchases at restaurants, gas stations and getting cash back at grocery and convenient stores. The fact of the matter is that consumers are using their debit cards everywhere.
This year industry analysts are predicting that there will be over five billion debit cards in use. This also means that fraud is getting more sophisticated. The bad check writing methods have now evolved into hacking financial databases and identity theft.
With debit cards you can pay in essentially two ways, you can make a PIN transaction or a (POS) point of sale transaction. From the cardholder’s perspective, there really isn’t much of a difference. However, the way that payment is processed and the cost to the merchant are much different. Merchants pay more for POS transactions then they do for a consumer who inputs their PIN. The reason for this is because POS transactions are processed on the credit card payment networks, while PIN transactions run in real time transactions and merchants get their payment usually much faster.
When the real time PIN transactions are processed, there is little no chance of becoming over drawn because the back account is immediately checked when the PIN number is submitted. As opposed to POS transactions which are not done in real time and banks will be more than happy to charge overdraft fees if the account balance is exceeded.
The credit card regulatory act in 2009 made the laws governing credit card companies much more strict. One of these regulations makes it much more difficult for people under 21 to get a credit card with having a co-signer. It also stops banks from increasing credit card interest payments without a reason.
Our last recession has pushed unemployment to nearly 10% with houses being foreclosed nationwide; people stopped spending frivolously and cut back on their credit card spending as well. These factors are the catalyst for the trend of people using debit cards over their credit cards.
When you’re ready to cut down on some of your expenses, like your credit card debt that has a high interest rate it may be time to consider transferring your debt to a zero balance transfer card. Starting off in 2012 there are plenty of offers for you to consider, however, you need to take your time and read the “fine print” because not paying attention to these details can cost you a bunch of money in the long run.
Make sure you’re paying attention to all those balance transfer fees, they will almost always charge some sort of fee to make that transfer for you. Generally, you’re looking at a 3 to 5 percent fee which will vary from card to card and if your transferring a significant debt that could cost you a lot of money.
When you’re contemplating a balance transfer offer make sure that you will be alright paying that fee. There are some cards that have a very long balance transfer up to 2 years, with the Citi Platinum MasterCard and they charge low fees usually around 3% and for 2012 there may be additional special offers.
There are other cards that will only give six months of 0% balance transfers and charge upwards of 4% in fees. So, make sure when you are filling out your application you read the fine print and make sure you are not being charged a higher transfer fee and a shorter 0% rate.
In 2012 there are promotions that will even reduce or eliminate these fees and give you an almost free balance transfer. When you use these offers, you may have to still pay a fee but you’ll get a sign up bonus which is around $50-$100 which makes the cost of those fees bearable and make it about $30 for every $1000 that you transfer. So don’t let these fees scare you off from making a balance transfer, by paying 3% upfront as opposed to those 15% and 18% interest rate make that 3% just a drop in the bucket.
Paying attention to the interest rate of purchases will save you a lot of money in the long run. With all the great balance transfer specials of 2012, you can move your high interest credit card balances to a zero percent balance transfer offer to avoid paying all those high interest rates. However, if you have credit available on your new card, that 0% balance may not apply to the purchases that you will make. So make sure you know the interest rate on cash advances and new purchases with your new card before you use it.
There are plenty of cards offering a 0% APR on purchases that can last almost up to a year for 2012, but there are others that may not even have one. If you keep running up the balance on your new or your old card it will make getting yourself out of debt that much harder.
Another thing to consider is what happens to the interest rate after your balance transfer offer expires. Unfortunately nothing lasts forever, and that includes balance transfer offers. They almost never last the life of the balance at 0%, usually it is around 6 months to a year tops. So make sure you pay attention to what the interest will be when the promotion is over.
So if you stick to you plan and you can repay your balances before the higher rate kicks in that’ great, but you can also apply for another 0% balance transfer from another company and make another transfer once the older rate expires and so on and so forth, until you can pay off your balance. Finding a smart way to reduce your credit card debt is a great idea for 2012!