Can You Go into Debt with a Debit Card? Here are the Facts


There is a common theory in the personal finance world that credit cards lead to financial ruin. As such, the story goes that financially responsible people should only pay with a debit card and avoid high-interest credit cards like the plague.

But are debit cards really that much safer? Can you go into debt with a debit card?

You can go into debt with a debit card. Although debit cards are linked to your checking account balance, overdraft protection fees and insufficient fund fees can leave account holders’ debit card balances in the red.

The good news is that you are unlikely to go into life-altering debt when using your debit card. However, if you get careless, overdraft fees can add up to be more than a minor inconvenience.

Read on to find out all you need to know about going into debt with a debit card.

Can You Go into Debt with a Debit Card?

A debit card is linked directly to your bank account, meaning you can’t use more funds than you have available, right?

So then surely you can’t go into debt with a debit card…wrong!

You technically can go into debt with a debit card. However, this is the simple answer to a more complex question. It takes a little explaining on how that is possible. So let me get to it.

In the strictest sense, it should not be possible to go into debt with a debit card. After all, a debit card can only be used with funds held in a linked checking account. You aren’t borrowing somebody else’s money to make purchases like you are with a credit card. You are paying with what is already yours. 

Therefore, if you have insufficient funds in your checking account, debit card transactions should theoretically be declined, and no debt is incurred. 

However, fast forward to 2022, and nearly every banking institution offers what is known as “overdraft protection.”

Overdraft protection is marketed as a convenience for debit cardholders but it can get careless debit card users into quite a bit of trouble.

If you try to make a purchase with your debit card for an amount in excess of what you currently hold in your checking account, your bank will provide overdraft protection to ensure that your purchase is not declined.

Some banks may use one of your secondary checking or savings accounts to cover the overdraft, while others may foot the bill themselves, extending you a line of credit. This line of credit is usually just a few hundred dollars, but some banks will offer credit up to $5,000 to cover overdrafts.

Whether your bank initiates overdraft protection by pulling from your secondary accounts or extending a line of credit, a fee will likely be involved. This fee is usually between $10 and $15 but can sometimes be a lot more.

The other thing to consider is that even if your bank doesn’t initiate overdraft protection, they will likely, at a minimum, charge you a fee for a “bounced” debit card transaction. These insufficient funds fees (NSF) will typically be about $30.

So through a combination of overdraft fees, NSF fees, and any credit extended by the bank to cover overdrafts, it is possible to accrue some debt when using your debit card.  

Can You Use a Debit Card with No Money in Your Account?

Debit cards are hugely beneficial for many reasons, but one of these is that you simply can’t overspend. You’re limited to what’s in your bank account. 

You should not be able to use your debit card with no money in your account. However, most modern banks automatically opt customers into overdraft protection, allowing debit card users to make some purchases even after their funds have been exhausted.

There are a couple of reasons banks will let you enter an overdraft scenario with your debit card:

  • Declined transactions are expensive for a bank. If you deplete your account and have a declined debit card transaction, the bank will end up footing the bill until they collect an NSF from you. Using overdraft protection allows the payment to process, and the bank can collect overdraft fees from you in the process.
  • If the bank extends your credit to cover an overdraft, they can collect interest on the money lent.

4 Ways to Avoid Debit Card Debt

Although you will unlikely compile thousands of dollars worth of debit card debt in the way you can with a high-interest credit card, overdraft protection fees and NSF fees can pile up in a hurry (take it from me!). 

Some ways to ensure that this never becomes an issue for you include:

  • Track your spending – while it may be a bit “extra” to balance a checkbook-style ledger every time you make a debit card purchase, it is definitely important to at least estimate a running total of your purchases and to make sure you are spending your money smarter and wiser.
  • Check-in consistently – although there is definite merit in not worrying about your finances 24/7, it is also important to sign in to your banking app every now and then to see an updated balance of your checking account.
  • Know your bank’s overdraft policy – each bank will handle overdrafts a bit differently. If you know an overdraft is likely for you and are uncomfortable having the bank extend your credit to cover an overdraft, either opt-out of overdraft protection or set up an alternate funding source to handle overdrafts.
  • Set up alerts – there is an alert for everything in 2022. If your banking app has low account balance alerts, sign up for them!

I use an app called Mint that helps me track and manage all of my spending. Ill leave a link to my review of it here! And just as an FYI, I’m not affiliated with them or anything, I’m just providing this to be helpful!

Can You Ruin Your Credit Score With a Debit Card?

While it’s hard to go into debt with a debit card and clearly not a good idea, there’s a little bit of good news on the horizon for anyone that finds themselves in this situation. 

You cannot ruin your credit score with a debit card. When you make debit card purchases, you access the money you already have. A debit card is essentially a much more secure way of paying with cash.

Even though a credit card looks nearly identical to a debit card, the payment process is much different. You are not using your own money to buy something when using a credit card. You are borrowing someone else’s and paying it back later. As a result, all credit card activity is reported to credit bureaus, which measure your ability to pay back debts.

Is It Better to Use Debit or Credit?

Many people will say that it is better to use debit. 

And this is a valid argument. 

Paying with debit can keep you in check from making splurge purchases, as you will only be paying with money you actually have. Paying with debit can also help keep prices lower, as many merchants have to raise their retail prices to offset credit card processing fees.

And if you’ve read my blog before, you know I am always in favour of avoiding credit, but I’m not completely against it as long as you can spend responsibly and pay your balance off each month.

However, astute financial people will almost always pay with credit and pay off their balances each month before interest accrues. Not only will this improve your credit score by showing that you can pay back the debt on time, but some credit card reward programs can be pretty enticing!

The Bottom Line: Going into Debt With a Debit Card

You can go into debt with a debit card. Through overdraft and NSF fees, your checking account can go in the red when you don’t use your debit card properly.

The good news is that debit card debt is unlikely to be life-altering, and with the proper planning and attention to detail, there is no reason you should ever get into any kind of debit card debt at all!

Thanks for reading people – Come back any time!

Geek, out.

Noel Moffatt

Noel Moffatt is the founder and main contributor for his blog - The Financial Geek. Based in Canada, Noel's passion for personal finance has helped him amass over 300k readers to his Financial Geek blog.

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