Well, Suze Orman has launched her very own pre-paid debit card, branded “The Approved Card”. Approved for what, do you think?
Suze has done a pretty good job over the years of selling books and air time for CNBC, and to give her credit, educating lots of folks with some fairly solid, generic advice. Key word here is generic. Her advice is not specific to you. And let’s face it, she is essentially an entertainer and author.
I’m hoping that readers of this posting don’t use debit cards, but I thought I would explain some of the basics…
- Absolutely first on the list is the fact that a mistake or fraud with your debit card results in cash from your account, your cash, coming out. Even though there are protections against fraud, unauthorized use and plain old mistakes, the cash is still gone, and you have to deal with it.
- Debit cards are a huge source of revenue for banks. Now, I am not against any money making enterprise, but you need to understand that debit cards are not provided out of the goodness of your bank’s heart.
- Any card, debit or credit, tends to encourage spending. Bluntly, there is nothing like the emotion of crisp, fresh, hard-earned dollar bills leaving your fingers. You feel it more.
- Pre-paid debit cards, like Suze’s, are laden with fees. Suze’s card is not too bad, costing you $3 to open, and $3 a month just to have. She does offer some type of credit protection and credit reporting, so for the thin-file or no-credit file users, her card could be helpful. Most other pre-paid debit cards will nickel and dime you out of your money.
- Debit cards are a terrible way to pay for travel, rent-a-cars and the like because the acceptor often will place a hold on your cash for potential expense. For example, when you rent a car, you’re not really sure of the ultimate expense until you turn the car in and tally up all the incidentals, and the car rental companies know this and will protect themselves.
Pre-paid debit cards might make some sense for the millions of folks out there without a bank account. That’s about it. If you think a pre-paid debit card will help you, look to Wal-Mart as an alternative.
A secured credit card, one with low fees and a clear, written policy on when a standard credit card will be issued, is a better deal. With a secured credit card, you open a savings account with cash that secures the card use. For example, $500 in a savings account will get a $500 credit line. As you use the card and pay according to the terms, over time, say 6 months to a year, you will be able to qualify for a standard card and have access to your $500.
An even better deal, and one that makes the most sense for most of us, is a cash-back or rewards credit card. A good source for the best deals, and I prefer cash-back over airline miles or rewards, is Bankrate.com. And the best news for any credit card is any fraud or mistake is only a charge against an account, not cash missing of an account.
The best deal if you want to control your spending is cold hard cash. I make few guarantees, but one I do make is that spending cash will limit your spending. Every time.
Keep in mind the magic formula for generating wealth is not any type of card, product or device, but behavior. Yes, behavior. If your behavior is misbehaving, you’re in trouble no matter what you use.
