9 situations you should never use a debit card
Debit vs credit card: when is it time to put the debit card away?
Although debit and credit cards look alike, they’re entirely different financial tools. A credit card allows you to make purchases using borrowed money that you must repay with interest over time. A debit card allows you to make purchases using the money linked to your bank account.
While credit cards can certainly hurt your finances because of the potential to rack up significant debt, they give you more protection and added benefits. I’ll review the risks of both types of cards and explore nine situations when you should never use a debit card.
What risk do you have using a credit card?
If someone steals your credit card, you get protection thanks to a federal law called the Fair Credit Billing Act (FCBA). If a thief takes your card or even just the card number and goes on a shopping spree, you’re responsible for no more than $50. Many credit card issuers offer fraud protection that eliminates your liability.
The protection improves if you become aware that your credit card is lost or stolen and report it before unauthorized charges are made. In that case, you’re not responsible for any amount.
The FCBA protects you from unauthorized charges on revolving accounts, including credit cards, charge cards, retail store cards, gas cards and lines of credit. The law also protects you against other issues like being charged for unaccepted goods, undelivered goods or other formal disputes you make. Those terrific protections should make you confident about using a credit card in stores or online.
What risk do you have using a debit card?
The federal Electronic Fund Transfer Act regulates debit card fraud. Many people mistakenly believe that because their bank is FDIC-insured, their money gets protected from theft. The FDIC only reimburses you up to limits if your bank goes out of business — not if a criminal steals your money.
Your liability for fraudulent charges on a debit card depends on how quickly you report it lost or stolen. Unlike a credit card, your liability with a debit card is not capped at $50 — it’s unlimited.
If you report a missing debit card before a thief uses it, you’re not responsible for any unauthorized transactions, just like with a credit card. If you report it within two business days, you’re responsible for up to $50. However, if it takes you 60 days after you receive a bank statement to report unauthorized debit card charges, you’re on the hook for up to $500.
If your debit card number gets stolen while you still have the card, you have more protection. In that case, you’re not liable for fraudulent activity if you report it within 60 days of your statement date. However, you have unlimited liability if it takes more than 60 days to report fraudulent charges. That means a thief could completely drain your bank account.
Now that you understand the potential risks associated with debit and credit cards, here are nine situations where you should never use a debit card.
1. Shopping online
One of the most essential rules for debit cards is never to use them online. Whether buying clothes, airline tickets or paying bills, it doesn’t matter. Using a debit card online makes you vulnerable to cybercriminals.
2. Making large purchases
When you make a big purchase, like furniture, electronics or appliances, you get much more protection if you pay with a credit card instead of a debit. For instance, if you find damage the furniture company won’t reimburse, you can dispute the charge with your credit card company. The card issuer will reverse your payment to the merchant and inform them that they’ve opened a dispute on your behalf.
But if you pay with a debit card, the money is immediately taken from your account. The only way to settle a dispute might be with an expensive lawsuit. Additionally, many credit cards offer extended warranties. So, if your new television has a 60-day warranty and something goes wrong after 90 days, your credit card might protect you.
3. Dining out
Using a debit card in a restaurant is especially dangerous because they’re one of the few places where the card usually leaves your sight when the server takes it away to process. It would be easy for someone to steal your debit card number.
While your credit card number could also get stolen, your potential liability is less than for a stolen debit card.
4. Buying gas
When you swipe a debit or credit card at the pump, some gas stations immediately hold your account to ensure you don’t buy more gas than you can afford. The hold amount varies by station but could be $100 or more, even if you only plan to buy $10 worth of gas.
Some banks may process a debit transaction at the pump for the exact amount within seconds and clear the hold immediately. But others may keep the hold for days, freezing a certain amount of money, which could cause you to bounce other payments or have new charges denied until the hold expires.
5. Checking into hotels
Like gas stations, hotels often put holds on funds when you pay with a debit card, which can temporarily reduce your available bank balance. So have a credit card ready when you check in.
6. Booking travel
Many credit cards offer travel-related benefits like rental car coverage, trip cancellation insurance and lost luggage reimbursement. Plus, they may pay bonus points and rewards for travel expenses that you can accrue to reduce the cost of future trips.
7. Making upfront deposits
Using a credit card is best for upfront deposits on goods or services, like travel reservations, freelance services or renting equipment. As I mentioned, once a debit card charge is processed and money gets withdrawn from your account, it’s gone. But putting a deposit on a credit card allows you to dispute a charge and get your money back if something goes wrong.
8. Automatic bill payments
Consider setting up automatic payments on a credit card instead of a debit to protect yourself from potential bank overdraft fees.
9. Building credit.
Most debit cards don’t allow you to build your credit, which is critical for healthy finances. You must generally have credit accounts in your name and in good standing to create a positive credit profile.
To sum up, you should only use credit cards if you can pay them in full or plan to finance a purchase using a low-rate credit card so you pay as little interest as possible. Not only do they give you more security and purchase protections, but they also help you earn rewards and build credit.
About the Author
Laura Adams is a money expert and spokesperson for Finder. She’s one of the nation’s leading personal finance and business authorities. As an award-winning author and host of the top-rated Money Girl podcast since 2008, millions of readers, listeners and loyal fans benefit from her practical advice. Laura is a trusted source for media and has been featured on most major news outlets, including ABC, Bloomberg, CBS, Consumer Reports, Forbes, Fortune, FOX, Money, MSN, NBC, NPR, NY Times, USA Today, US News, Wall Street Journal, Washington Post and more. She received an MBA from the University of Florida and lives in Vero Beach, Florida. Her mission is to empower consumers to live healthy and rich lives by making the most of what they have, planning for the future and making smart money decisions every day.
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