How Many Debit Cards Should I have? The Ultimate guide.

Over 87 percent of Americans own at least one debit card. Why? The main reason is that it's easier to track expenses. If you want to purchase something from the store, you can either pay in cash, with a card or your smartphone, or watch using Apple or Google Play. Debit cards are similar to cash, and the money is instantly taken from the connected account. It's common to have multiple credit cards, but how many debit cards should you have? Owning multiple debit cards can be a great way to budget and save.

Debit Card vs. Credit Cards: What's the Difference

How Credit Cards Work 

Credit cards are short-term loans from the bank that can let you spend more money than you sometimes have. If your credit card limit is $5,000, but you only have $2,000 coming in this month, it could be tempting to overspend and then not be able to pay your credit card bill at the end of the month. 

The money doesn't come out of your bank account; it gets put on the credit card account, and then it is up to you to pay the balance. When you open a credit card, you extend a line of credit with the bank and agree to pay it back with interest and fees, which averages at around 18 percent, but can be as high as 30 percent or more depending on your credit score. You have to at least meet the minimum payment due each month, but the leftover unpaid amount racks up interest. 

Fifty-four percent of Americans carry a balance on a credit card account to Bankrate. Credit card balances can take years to pay off. Because the minimum payments are typically low and the interest rates are high, if you don't pay off the credit card balance each month, you end up in debt and have to pay more than your initial balance. If you spend $500 and only make the minimum payment, you could end up spending $698.36 instead over the course of 47 months, according to the Bankrate calculator. Missing payments and maxing out cards (reaching your card limit and not paying it off) hurts your credit. 

How Debit Cards Work

When you pay for something at a store or online using your debit card, the amount is instantly taken out of your bank account. It's the same as using cash; you can only spend what you have. Debit cards are a great option to avoid overspending and debt. If you do not have the funds in your account and try to pay for something, the transaction will most likely be declined, or the bank will approve the transaction but charge you an overdraft fee. 

Debit cards are safer and more convenient than cash. When you make a purchase using your credit card, you have to use your unique PIN number, to prevent theft. If you lose your debit card, you can report it and get it quickly turned off, unlike cash. You can also shop online and manage your account with online banking. Some debit cards even have cashback rewards. Apps like Acorn and Qapital can link to your checking account and invest for you. They round up each debit card purchase and put the cents into an investment account. 

Businesses themselves can't take your card and turn it into money; they have to use a payment processing service like Square or Stripe. These services charge a fee to the business, which can be anywhere from 2.87% to 4.35% of the purchase. Payment processors typically charge less for debit card processing since it is quicker for them to process and receive the funds. When you're shopping at a small business, using your debit card can help the business earn more, and sometimes they pass the savings on to the customer. 

Benefits of Using a Debit Card

Many people find it easier to control their spending when using a debit card. Have you ever noticed that you tend to spend less if you use cash? When you swipe a credit card, you can just "worry about it later," and you don't see your bank account getting lower with each purchase. Debit cards are immediate, and you don't have to worry about going into debt or paying interest. Debit cards also allow you to get cash out of an ATM or store without paying extra fees (some ATMs do have service charges). Credit cards may have a cash advance option, but it typically comes with fees and a higher APR. Debit cards are a safer alternative to cash that allows you to shop online or in-store. 

The Money Envelope Method

The envelope method for budgeting started trending in the last few years on social media as a way to avoid overspending. The envelope method suggests you cash your paycheck and then divide it into envelopes based on expenses, savings, and spending money. Some people divide their spending money even further into categories like going out, movies, shopping, or Starbucks. While being able to visually see your budget and spending habits, carrying large amounts of cash isn't always safe and makes online shopping difficult. A more reasonable alternative is to have multiple debit cards and bank accounts, each serving its own purpose.

Easy Budgeting Framework

How you divide your income into accounts can depend on multiple factors, including the cost of rent and how much debt you have. A good rule of thumb that many people use is the 50/30/20 rule. Set aside 50 percent of your paycheck (after taxes and deductions) for your needs like rent, utilities, and groceries. Give yourself up to 30 percent of your income for wants and splurges, things that aren't bills. The leftover 20 percent should go into savings or towards paying off debt like a credit card bill. If you're paying high rent at the moment, you may need to put 40 percent towards bills and only 20 percent towards non-necessary purchases. 

How Many Debit Cards Should You Have?

Many experts recommend having four bank accounts, two checkings, and two savings. The checking accounts should each have their own debit card. One of these accounts can be for bills, and the other for spending. If you pay all of your bills online, you may not need a debit card for your bills checking account and can set up online payments or get a physical card for convenience. The two savings accounts do not need their own cards. One savings account can be for emergency funds and general savings, and the other can be for a big purchase like a house downpayment or a car. You could even set up a third savings account if you have a short-term savings goal like a new computer or vacation, this is called the high-5 banking method. 

Open Multiple FDIC (Federal Deposit Insurance Corporation) Insured Accounts

Most banks will only ensure each depositor (you) for $250,000 for each type of account (ex. personal, joint accounts, and business). This means if your bank closes or something happens, the FDIC will pay you back up to $250,000. You can feel safe knowing your money is insured and will not be lost up to that amount. If you have more than that amount in an account, you could be putting your assets at risk. Opening another account at another bank allows you to keep your money safer.

Having Multiple Debit Cards for Budgeting

You can avoid overspending by dividing your income into different checking and savings accounts, each with its own card. Instead of using one debit card for all purchases, use two checking accounts, one for bills and necessary purchases and another account for recreation or leisure spending. Some employers have a direct deposit option that allows you to split your paychecks automatically, or you may need to do it yourself with online banking and manually transfer the amounts. 

Having multiple debit cards can be a great way to budget and save. You can have one checking account for your necessities like bills and the other for your "fun money." If all of your paycheck goes into one account and you have bills due at different times, it can be hard to see how much you have for savings and how much you have to spend on doing leisurely activities. You may think you have more to spend on going out or shopping than you really do once your monthly expenses are accounted for. Savings accounts do not typically need debit cards because they're for savings and not spending. If you hit your savings goal or need to access your emergency fund, you can transfer the money into the appropriate checking account to use it. Having two debit cards, each connected to a dedicated checking account, lets you budget and see how much money you actually have to avoid overspending. 

Paying bills from one account lets you see how much money you actually have to spend on fun things like a new outfit or going out to dinner with friends. If your account says you have $2000 in it, but you have $1200 to spend on bills this week, then you really only have $800, and some of that should go towards savings or debt repayment.