Debit cards Smart ways to avoid the traps.

For many Americans, debit cards have become the way to pay.Customers say they prefer the cards, which directly tap into their checking accounts, over credit cards for the convenience of not having to carry cash or pay finance charges.

Banks that issue the cards are aggressively promoting air mileage and other rewards to entice people to use debit even more often. What's in it for the banks? Plenty.

For one thing, banks earn money from merchants for processing debit-card payments. And they make much more through overdraft fees, paid by you

Overdraft outrages

One study found that customers who used debit cards more than 20 times a year paid an average of $223 in fees for having insufficient funds, compared with $40 for those who didn't use them. And banks have been making it all too easy to overdraw your account.

Until 2003, banks routinely declined debit-card purchases and ATM transactions for amounts that exceeded a customer's balance unless the account was linked to a savings account, credit card, or line of credit to cover overdrafts. Now many banks are letting the charges go through--without alerting consumers that they have exceeded their account's balance, according to the Center for Responsible Lending, an advocacy group.

Each time that happens, the customer is slapped with an overdraft fee, which can average more than $30. This fee is essentially a finance charge for a short-term loan, which the bank swiftly recoups from your next deposit. When translated into an annual rate, overdraft fees on debit cards can exceed 1,000 percent.