this post was submitted on 23 Oct 2023
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Isnt charging interest the same as a fee though? Also, why stop buying with a debit card? Are you advising credit cards are a better choice?
No because 12%(?) interest on overdrawing your account by $1 is a lot less than a $35 flat fee. If you overdraw your account you’re basically asking for a loan for the negative balance. It makes more sense to charge like you would for a loan.
I had a bank with “overdraft protection” before. It was basically a $500 line of credit that was activated if you overdrew. The interest rate was terrible, though.
To me that’s reasonable. If the interest was 20%. That’s better than the fee. The fee if calculated at an interest rate is robbery.
Credit cards are definitely better than debit cards if you can manage your spending well. The biggest reason for me is that credit cards offer better fraud protection. Say your debit card gets stolen, they can clean out your entire bank account and suddenly you have no money. It will take time for the bank to reverse these charges, meanwhile you have no way to buy necessities. With credit it's not your money and the credit card companies are insured and deal with this stuff daily. You also still have money in your bank account for necessities.
You absolutely have to be careful with credit though, especially if you aren't good at budgeting. It's not free money and will charge interest if not paid off each month, but if you can use it responsibly you can take advantage of the perks, like cash back, points and whatever else they offer.
What I personally do is only use credit cards, I have certain ones that offer the best perks for certain purchases and pay them off in full every month at minimum. You can set them up to be very similar to a debit card and monitor your spending so you don't build up too much debt. It boils down to whether or not you can trust yourself to be vigilant in sticking to a budget.
What I do to make sure I’m staying in budget is pay the cards off every week. Gives time for transactions to post and ensures the card never holds a higher balance than I can pay off before interest is added.
I’ve gotten automatic credit line increases over the years, so the amount I can charge is roughly 4x the max I ever have in the bank, but the weekly payoff strategy makes it basically the same as using debit, except with cash back perks.
This is the way. Get a couple good rewards cards, but treat them like a debit card. Don't spend money you don't have unless it's an emergency, and always pay off your balance before the billing cycle ends. You'll pay no interest and earn points for travel, statement credits, and more.
Start with a flat rewards card like the Wells Fargo Active Cash card. No annual fee and 2% back on all purchases, and if you pay your mobile phone bill with it, you get $600 towards replacing a broken or stole phone.
Once you've built credit, check out cards like Chase Sapphire Reserved which gives 3% on travel and restaurants/bars, and points are 1.5x when you book travel through Chase, so a $300 flight only costs $200 worth of points. The Amex Blue Cash Preferred gives 6% at supermarkets and on streaming services, and 3% at gas stations, and they often do promos with up to 10% cash back. As long as you pay your cards off every month and don't get hit with interest, it's free money just for buying the same things you always do.
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It's not really a fee though - it's just fairly applying the interest rate. It sounds very fair to me - you disadvantage them no more than you help them if they were on the other size of 0.
But more importantly, a fee is an arbitrary amount of money charged. It might be linked to costs you incurred for the other party, they might be making a profit or a loss on the exchange - at the end of the day it's just an arbitrary amount of money