I read recently that over half of the “every day” purchases made by consumers are done via Debit Card. These purchases include groceries, gas, and meals at restaurants. Some people even use their Debit Cards for online purchases.
I understand that people don’t want to go into Credit Card debt. This is the primary reason people use their Debit Card instead of a Credit Card. BUT, I am not sure the true dangers of Debit Cards are understood. Here are a few issues you should know about:
1. Debit cards have limited fraud protection – If your Credit Card gets compromised, your maximum exposure is $50. And, most Credit Card companies will not hold you responsible for any fraudulent charges. With Debit Cards, on the other hand, you could have to pay some or all of the fraudulent charges, depending on how soon you report the fraud to your bank.
2. YOUR money is exposed – Fraudulent charges on your Debit Card expose the money in YOUR bank account. That money remains tied up (and unavailable for you to pay your bills) while the bank sorts out the fraud.
3. Bank fees – I have heard countless stories of consumers charged bank fees due to fraud on their account. These include overdraft fees, minimum balance fees and bounced check fees. These fees add up quickly, and create a downward spiral that is hard to pull out of.
4. Selecting “Credit” at the checkout does not protect you – A Debit Card does not change to a Credit Card, by selecting Credit at checkout. This merely changes how the transaction is processed behind the scenes. At the end of the day, your bank account is still potentially exposed.
5. Debit Cards don’t report to the Credit Bureaus – This means that Debit Cards do not help improve your credit profile. The proper use of Credit Cards, on the other hand, can improve your credit score.
I understand that Credit Cards can be too tempting to some people to buy items they can’t afford and go into debt. In some ways, Debit Cards protect us from ourselves. So, how can we have the protections of a Credit Card, without sliding into debt.
I suggest getting a credit card from the same bank as your checking account. This way, it is easy to move money out of your checking and onto the Credit Card. Whether you do this weekly, monthly, or after each purchase, it is a great habit to avoid the dreaded Credit Card debt. It takes discipline, but the risk of exposure from using Debit Cards makes this a practice worth adopting!!