Debit cards are a fast and easy way to take care of recurring bills. Once you set up an automatic or recurring payment, the merchant is authorized to withdraw funds from your debit card, often linked to your checking account, to collect for the provided services or products. If you cancel the card before the new bill is due, it is likely the transaction will be declined, unless you have linked it to a backup funding source.
Electronic Payment Systems
Whenever you set up a recurring electronic payment, odds are it is processed through an electronic payment system such as the Automated Clearing House. ACH payments are used for a variety of everyday transactions such as gym memberships, utility bills, car payments and more. You do not necessarily need to have a debit card attached to an account to set up recurring payments. However, if you are using a debit card – which is funded by your account as well – you will need to ensure that the card number you supplied when you set up the payment is current. Because ACH payments are withdrawn from the money you have in your account, if the account is no longer active, or the card has expired, then the payment will not be processed.
Canceling an Automatic Payment
Canceling an automatic payment is sometimes more difficult than it should be. Some merchants require you to cancel the payment before the next billing cycle, and you may have to contact a customer service representative, or even write a letter. If you cancel a recurring payment, it is always a good idea to double check with the merchant to ensure the scheduled payments are canceled and that no future payments will be withdrawn from your account.
For further reassurance, you can also have the merchant give you something in writing attesting to the fact that you have requested recurring payments to stop. In the event you are charged the following month, you will have a paper trail. Unfortunately, unscrupulous merchants do not always make it easy to cancel recurring payments and will give you the runaround when you try. In this case, the U.S. Consumer Financial Protection Bureau has sample letters you can send when merchants make it difficult for you to cancel your payment.
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While debit cards are typically linked to a checking account, credit cards rely on an unsecured line of credit that you must repay. If you cancel a debit card, it is unlikely the merchant will be able to still use the old card number to process a payment. However, in the case of credit cards, merchants can receive a customer's new card information through updater services provided by all four of the major credit card issuers.
It is also worth noting that just because you have canceled a debit card does not necessarily mean you are not responsible for remitting payment to a merchant. For instance, if you have a gym membership, and you have a contract for a specified amount of time, you are obligated to make payments for the duration of the contract. If you fail to do so or cancel early, you may face early termination penalties.