How to Build Good Money Habits With a Debit Card?

November 23, 2021 Mutual Fund

Many banks and financial institutions constantly roll out irresistible benefits and offers on credit cards. In order to improve our lifestyle, many of us are habituated to live beyond our means, by borrowing on credit. However, many people end up getting trapped in debts in greed of these alluring benefits offered by credit cards, leading to financial stress. In order to avoid paying sky-high interest rates, damaging the credit score, and falling into a debt trap, it is advisable for many of us (who are not financially disciplined) to use a debit card that pays from the money we actually have. However, simply swiping the debit card for all your everyday spendings and bill payments is not sufficient for a financial discipline. This article will inculcate how you can build good money habits with a debit card.

A debit card is one of the secrets to build good money habits. It is not just a card for spending but a tool to track your financial habits. Unlike any other card, a debit card uses the money that is already there in your savings account. So, when you use your debit card in the ATM or swipe it to make purchases, it takes money out from your savings bank account. As the money gets deducted from your bank account as soon as you swipe the card, the bank does not levy any interest or charges to you. However, unlike a credit card, the debit card does not let you withdraw or use more money than what you have in your savings bank account.

A debit card is the best option to use if you want to start building good money habits and follow financial discipline, as the debit cards do not let you temporarily borrow money from banks. However, even reckless use of a debit card can put you in an unwanted cash crunch. So, let’s see how you can build good money habits with the help of a debit card:

1. Track Where the Money Goes:

Tracking expenses is a crucial part of managing money. When you know where your money is going, you become more disciplined towards spending your money next time. Internet banking or net banking can help you track your expenses and check your balance at regular intervals. With the help of mobile banking app it becomes even easier to manage your money as most apps show you a pie chart or a graph of how you are spending and investing your money. Another benefit of a mobile banking app is that you can access your bank account from anywhere and at any time. So, you do not have to wait until you receive the bank statement to track your expenses. Most banks send debit card alerts for free. However, if you do not get any intimation of your spendings through a debit card, you should set the transaction alerts on priority because if you do not know how much you have spent, you are likely to overspend. It is important to always monitor your spending and carefully check your transaction history.

2. Apply Your Own Spending Rules:

It is essential to set your own weekly or monthly budget and stick to it. You can even set a spending limit on your debit card in order to avoid overspending and keep your spending in check. For example, if you set a monthly spending limit of Rs 30,000 to your debit card, then in that case you will not be able to spend more than that in a month unless you change the limit through net banking. Similarly, you can set a transactional limit to your debit card. In this case, if you have set a transactional limit of say Rs 10,000, you will not be able to spend more than that at a time or in a day, as per the terms of the debit card issuer. Remember, that you can change these limits anytime by logging into your internet banking or informing the customer service desk.

3. Ditch Your Credit card:

As discussed earlier, reckless use of credit cards can make you fall into a debt trap. It can be challenging to come out of a debt trap if you do not follow financial discipline. Therefore, it is important to properly close your credit cards and start using debit cards for regular purchases. Using a debit card for your everyday needs keeps you away from the urge of spending, as you can see your money going out from your bank account. Therefore, try to ditch your credit card and replace it with a debit card to maintain financial discipline.

4. Use Money Management Apps:

It becomes difficult to manage your expenses if you have multiple bank accounts and debit cards. However, there are many money management apps available for Android and IOS users that not only help you manage your wealth but also help in keeping a track of your income and expenses. By tracking the income and expenses of all your accounts in one place, you will be able to manage your money well. However, it is advisable to check the safety and security of the apps and download only the trusted app.

5. Do Not Opt for Debit Card EMIs:

Many banks have started offering debit card EMIs to their select customers. In this case, the entire money gets debited from your bank account and credited back in a few days. It then gets converted into the EMI option you opted for. Such EMIs are generally offered for a small tenure of three to six months. However, you can opt for a longer-term by making a fixed deposit to back up your debit card loan. These fixed deposits backed EMIs can be opted for up to 24 months and have a rate of interest of 11% p.a. to 15% p.a. However, it is not recommended to avail of such facilities as you might have to break your fixed deposit to pay off the dues if you are unable to make the repayment on time. Furthermore, availing of such facilities often can put you in a debt trap.

6. Choose the Right Debit Card:

Similar to credit cards, there are multiple types of debit cards that can be offered to you based on the type of savings account you hold. Generally, private banks offer three to four types of savings accounts and offer different debit cards on each type of account. You should choose the right type of savings account and debit card depending upon your spending pattern and requirements. For example, HDFC bank offers a platinum debit card with their Savings Max Account that has various benefits, such as free unlimited withdrawals from any bank ATM, 1% reward points on every swipe, accidental death insurance, etc. Although such high-end cards are offered only on premium savings account, some banks allow normal savings account holders to purchase them separately. However, before purchasing them, it is advisable to do a cost-benefit analysis and check whether the rewards are worth the annual fee.

7. Use Reward Points:

Although the debit card reward points are not as worthy as credit card reward points, regular use of the debit card can earn you a considerable amount of rewards. Many individuals do not even check how many reward points they have accumulated on their debit card. However, not converting your reward points into cash or not using them to make purchases, will result in lapse of reward points. Most banks let you use your reward points through net banking within three months of earning them. Therefore, it is necessary to keep track of the reward points and use them to maximise the debit card benefits. Also, if your debit card offers premium facilities like accidental death insurance, ensure that you actively use your debit card every month for an uninterrupted insurance coverage. To ensure you actively use your debit card to earn maximum reward points, it is advisable to link your debit card to your UPI app and preferred online shopping portals.

To Conclude:

If you know how to use your debit card wisely, you can build good money habits that will help you save a substantial amount of money over the long run. Use the tips discussed above to learn how to wisely use your debit card. However, it is also necessary that after ditching your credit cards, you stay away from the unsecured loans to fulfil your desires. Such loans are usually very costly as they charge a high rate of interest. Availing of such high-cost loans often can put you in a stressful situation of a debt trap. Although the credit cards are not advisable to use for everyday purchases, you should keep a credit card for medical emergencies if you have not yet build your emergency fund. With the right steps and motivation, you can change your money habits over time and become financially disciplined in the long run.

This article first appeared on PersonalFN here