There’s nothing wrong with using your debit card every now and then, but financial expert Martin Lewis warns that if you rely on it, you’re making a big mistake.
The reason for this is that they are “hazard cards”.
If you are still confused as to why this is so, Lewis opened up why they can come with pitfalls on The Martin Lewis Money Show live.
Nowadays, the vast majority of us use a debit card on a daily basis, whether it is to buy milk and bread or to treat ourselves to something more generous.
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Many of us use our debit card every day to access cash. (Getty Stock Image)
At first glance, debit cards are pretty simple: you use the card to pay for something with money from your bank account instead of using cash.
They are different from credit cards, where you pay for things with money borrowed from your bank and have to regularly repay the accumulated debt.
However, the money-saving expert explains that the cards we rely on so heavily to pay for our daily expenses can cause us to get into debt.
However, you need to be wary not only of your debit card, but also of the overdrafts associated with your account.
Yes, the thing that allows people to access money they don’t have when they completely run out of money.
Martin Lewis warned that interest rates on most overdrafts are double those of the average credit card. (Getty Stock Image)
Lewis went on to say that the interest rates on most overdrafts are twice as high as those on the average credit card that you can get at any branch bank.
These rates are currently around 40 percent and can even rise to 49.9 percent at some banks.
This is a crazy amount compared to credit cards, where the average interest rate is around 24.3% per annum.
This obviously depends a lot on the card you choose, the term and your credit score. However, it is still much cheaper than an overdraft and can improve your credit score through spending and repayments.
Lewis noted: “Most consumer overdrafts today are at 40 percent, twice the rate of a traditional credit card. This means that debit cards are now dangerous when overdrawn.”
He explained that it might be worth checking with your bank to see if there is the option of a zero percent overdraft; if not, there is also the option of applying for a zero percent credit card.
“If your account is overdrawn, the first thing you need to check is whether you are eligible for a zero percent overdraft and for how much,” he said.
“People also ask me if I can transfer my overdraft to a zero percent card. The answer is yes, but only with some special cards. This is called a money transfer.
“With a money transfer card, you apply for a new card and it deposits the money into your bank account for you, allowing you to get rid of the overdraft you now owe on the card.
“For large overdrafts, this is best, you need a good credit history.”
The financial expert explained why debit cards are now “danger cards”. (ITV)
The financial guru said the best way to take advantage of an overdraft if you have to is to set up direct debits just before payday to shorten the time you spend in overdraft.
He also added that if you have multiple debts, it is important to rank them by interest rate, giving priority to the highest debts.
“Then you take any cash you might have left and pay the highest interest rate and ignore the others,” Lewis said.
“When that interest rate comes due, focus on paying off the next higher interest rate.
“When that’s done, clean up the next thing and the next thing and so on.
“It’s called a snowball effect and means you get out of debt faster.”
