Debit & Credit Card Problems

Debit cards and credit cards can help make for easier financial transactions for many consumers. Credit cards may function as emergency reserves for sudden medical costs, car repairs or other financial challenges. In some cases, consumers receive greater protection from theft when using debit cards and credit cards. But these perks come with some serious disadvantages that can cause financial headaches for consumers. Understanding problems related to debit and credit cards may help you avoid them.

Overdrafts

Using debit cards routinely without making sure that checking accounts hold enough funds to back purchases can result in overdraft fees. Banks may cover overdrafts by fronting the money to cover the purchase or cashed check, but consumers may pay hefty penalties for each overdraft fee, no matter the size of the initial purchase. For example, a customer may overdraft a checking account when purchasing a $3 cup of coffee, which the bank covers before assessing a $35 overdraft fee. Unwary consumers who swipe their debit card several times through the course of the day before realizing that they've overdrafted may accumulate three or four $35 fees in one business day.

Liability

While credit cards offer protection against thiefs using cards to make major purchases, debit cards don't always offer that protection. Consumers have greater liability when thieves access their debit cards (or debit card number and expiration date) to make purchases or withdraw funds from bank accounts. While you're working to resolve the problem of a thief having drained a bank account using your debit card, checks may start bouncing and automatic online payments declined, resulting in additional woes.

Debt

Credit cards can create major debt problems for consumers, particularly for customers unaccustomed to the responsibility of using cards wisely and immediately paying down balances. Problems compound when large debt loads accumulate steep interest, annual fees and penalties for late payments. As consumers make multiple high-dollar payments toward credit card debt each month, this can begin to create financial problems in other areas of their life, such as missed payments to other agencies for student loans, health insurance or mortgage payments.

Credit Rating

While wise usage of credit cards, including making payments in full and on time, can lead to good credit, missed payments and high balances can create problems for consumers leading to poor credit. If consumers become unable to make credit card payments, their lenders may turn over accounts to collection agencies, creating financial anxiety and leaving negative marks on credit histories. In a worst-case scenario, consumers may decide to file for bankruptcy because of an inability to pay down credit card debt.