Bank of America will begin charging $5/month to use a debit card starting early next year: read the AP article in USA Today (in which I make a cameo appearance).

First, let’s bash Bank of America because it’s cathartic and easy. It’s like their newly government-involved business plan was written by the Postal Service. Charging increasing fees to access your increasingly bloated bureaucracy is always a solid business idea. What next? Fees for waiting in line to see a teller? If there’s one thing America loves, it’s long waits combined with higher rates. What could possibly go wrong?

Back to the actual news…

It’s not all Bank of America’s fault. Wells Fargo and Chase are also testing out similar fees in select markets. Argh. In fact, most banks are restructuring all of their fees. So, what’s the deal?

We’re just beginning to see the unintended consequences of the Dodd-Frank Act. Sure, I’ll summarize the Dodd-Frank Act for you. Thanks for asking. When the nation cratered financially (due to bad loans, irresponsible lending, and other fiscal bafoonery) congress decided that more regulation was needed to reign-in our personal and corporate stupidity. Enter the massively-regulating Dodd-Frank Wall Street Reform and Consumer Protection Act to save the day via massive regulation of the financial industry. Here’s the fun irony of this bloated act:

1. Compliance with numerous new regulations cuts into bank profitability.

2. Banks create new fees to increase profitability.

3. One of these fees creates a $5/month penalty to use a debit card.

4. Bank customers switch to using no-fee credit cards.

5. Bank customers are responsible with their spending and pay off their credit cards every month <—#sarcasm.

I’ve helped people with money for years. 9 times out of 10, #5 doesn’t happen. What does happen? Bank customers look at their credit card bill and say “How in the heck did that happen!?” You can probably see what I’m getting at: the Dodd-Frank Act (created to help avert future credit messes) will most assuredly be the cause of a large number of new personal credit messes as masses switch back to credit cards. Awesome.

My plea to America: please don’t switch to credit cards. Statistics show that you’ll waste way more than $5/month.

Use a combination of cash, online bill pay, and checks (fyi: “checks” are dollar-sized pieces of paper that you write on to pay people. If you don’t know how to use a check, ask your parents…or one of your Facebook friends with an email address). I’m a huge fan of the Dave Ramsey Envelope System. You’ll spend a lot less money using all cash…mainly because it can be a royal pain to only use cash.
Also, consider switching to a credit union. I love credit unions.

Banking for free was fun while it lasted, wasn’t it?