Manage debt through usage of debit cards

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Long before they became a wallet staple, debit cards had been the shopping essential for Dubai expat Tasneem Raza.

This payment method also gives her peace of mind knowing she’s spending her own money. Besides, she not only avoids neck-breaking interest charges, she easily keeps her monthly spending in check and angry credit collectors at bay.

To avoid draining her account, Raza makes sure she sticks to a budget each month. “I maintain an account with a certain amount of money which I allot myself for expenses every month. I use that against my debit card. It always works well for me as I know that’s my limit for the month and I won’t end up overspending,” she adds.

Everyday payments

Like Raza, a growing number of residents in the UAE are switching to debit cards from credit cards, as consumers struggle to get a grip on their spending and break free from debt.

According to electronic payments network Visa, first-half 2010 debit card transactions in the Gulf Cooperation Council (GCC) alone rose by 19.4 per cent, eclipsing the 0.6 per cent rise in credit card transactions. Based on Euromonitor International figures, the number of debit cards in the UAE increased by 57 per cent between 2005 and 2009.

Debit card numbers are also rising in Egypt, Oman, Kuwait, Lebanon, Bahrain, Qatar, Saudi Arabia and other parts of the Middle East. Topping the list in the GCC is Saudi Arabia, where debit card numbers rocketed from just over 13,000 in 2005 to at least 22,000 last year.

Growing popularity

“We are seeing growing popularity with debit cards globally as customers are more cautious with their credit and related costs. With a debit card, customers no longer have to worry about having enough cash in their wallet,” notes Mustafa Ramzi, head of UAE Cards at HSBC.

“Customers cannot purchase more than their available funds in their account as purchases done by use of the debit card normally require online approval from the bank before transactions are completed. A debit card is thus an excellent facility to help people manage their finances,” adds R. Sivaram, senior vice president-head of cards, retail cards business at Emirates NBD.

The legal difficulties associated with credit card defaults have also prompted many consumers to turn to debit cards.

“Factors such as the competitive charging differential between credit and debit card use, the legal hazards regarding defaulting on credit card repayments in the UAE, and the increased opportunities for foreign debit card use by Middle East cardholders, debit cards are becoming a more attractive offering for customers across the region,” notes Andrew Rochford, solutions consultant at ACI Worldwide. Despite debit cards’ rising popularity these days, some consumers still prefer to stick it out with the good old credit card. For Arefa Noor, an expatriate from Singapore, credit cards remain the most convenient spending tool. “I have a debit card, but I don’t use it because it doesn’t have a mandatory spending limit. Without the limit, you will end up draining your bank account because you’re allowed to use your debit for as long there’s money in there.”

“I also find it easier to monitor my expenses with credit cards. The act of paying my credit makes me aware how much money I’ve spent and how far away I am from exhausting my savings,” Noor tells Gulf News.

Noor says she doesn’t have any problem with credit card charges because she settles her dues on time. “When you’re in the habit of paying only the minimum, that’s when you run into trouble,” she adds.

19.4%

rise in first-half debit card transactions in the GCC

57%

rise in debit cards in the UAE between 2005 and 2009

25m

retail outlets?worldwide that accept HSBC debit cards

gaining ground

Debit card numbers are rising in Egypt, Oman, Kuwait, Lebanon, Bahrain, Qatar, Saudi Arabia and other parts of the Middle East. Topping the GCC list is Saudi Arabia.

By Cleofe Maceda?Staff Reporter

© Gulf News 2010. All rights reserved.