Debit cards can have a lot of appeal — especially if credit cards have resulted in statement shock, overdraft fees and even regret. So it's not hard to understand why some people cut up their credit cards, put them on ice (literally) or decide they will, from here on out, use only debit cards. It seems like the one sure way to avoid spending money they don't have and winding up in debt. Many have been there before and don't want to return — ever.
Understandable as it is, going without credit cards can be a costly decision. Your consumer protection rights are not nearly as strong as with other payment methods and the rewards programs (if there are any) tend to be a lot less generous for debit cards. If you are using prepaid debit cards, you may be paying monthly fees and transaction fees.
But what if you could get the best of both worlds — the perks and protections of a credit card but the discipline imposed by a debit card?
That's the idea behind "Debitize," a service that allows you to register your credit cards so that they work like debit cards. Basically, you register your card and your checking account. Shortly after you charge a purchase, the amount is debited from your checking account, just as it would be had you used a debit card. When the bill arrives, Debitize automatically pays it — in full, with the money debited from your account earlier. The product is still in private beta testing, though, interested consumers can request an invite at their website). A public launch is planned within six months.
Debitize's basic service will be free, but the company plans to charge for some of the premium services introduced down the line.
It's the brainchild of Liran Amrany, who has a master's degree in financial engineering and spent nine years working in capital markets. He said friends often came to him for financial advice. After two of them informed him that they were ditching credit cards in favor of debit cards (rejecting his advice to the contrary), he came up with the idea for Debitize.
"We're trying to help people stay out of credit card debt," he says. He also wants to help people build credit — a good idea even if you have no plans to borrow, because it can affect what you pay for insurance and whether you're able to rent an apartment. And, of course, if you find yourself suddenly in need of credit, you can qualify for more favorable terms. (If you don't know whether you have good credit, you can check your free credit report summary at Credit.com, which updates every 30 days.)
Advantages of automating a credit card this way include not spending more than you have (theoretically — more on that in a moment), not having to worry about due dates and late fees, being able to rack up rewards for your spending and building a good credit score.
Keeping an Eye on Your Finances
Some cautions are also in order, though. What if you put more on a credit card than you have in your checking account?
"At this point, we can't cause your card to be declined at the register, so we are relying on you to curb your spending once you've used up most of the funds in your checking account (we'll be sending warnings and notifications if you get low)," Amrany said in an email. "There is technology out there which would give us the ability to have your card declined at the register in this scenario (we know some people want this) — this is also in the product pipeline, but will realistically take a little longer to get there."
Another possible scenario Debitize is working to address is when you want to carry a balance, perhaps to spread an unexpected car repair over two or three billing cycles.
"The good thing is we won't overdraft you," Amrany said. "We can see how much is in your checking account and will make sure not to take more than that (we're even letting you set a minimum balance so we don't leave you with nothing in your checking account). Otherwise though, you can still end up in credit card debt if you ignore our warnings and continue spending on the card."
There are some DIY steps you can take if you have credit cards and are afraid to use them. You can move money from a checking account to savings as soon as you spend the money on a card, so that you'll see your available funds shrink and you'll have the money to pay your bill when it arrives — and you can automate payment from your savings. That way, you can enjoy the protections and rewards of using a credit card without risking bills that are rude reminders of purchases you'd forgotten.
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