I personally don’t like to use debit cards only because I use my Discover and Chase Mastercard for 99% of my purchases. If you must know, the remaining 1% is used for small cash purchases, such as coffee and gum. But that’s just me. There are countless of other people who feel more comfortable using debit cards and refuse to use credit cards all together. While use of debit cards can help control your spending and budgeting better, I think it’s a big mistake to choose to use debit cards instead of credit cards.
I had this argument with couple friends when I noticed them making their miscellaneous purchases with their debit cards. One friend argued that she hates using credit cards and solely relies on her debit cards to make all of her purchases. When I asked her why, she didn’t have a good reason except a generic response in regards to not having to pay bills at the end of the billing cycle. I argued with her that using credit cards are safer, but she didn’t buy my argument. After this incident, I decided look online and do some research on use of credit cards versus debit cards.
Pitfalls of Debit Cards
What I discovered confirmed my original statement. Apparently, Consumer Reports released an article last year, dubbed, “The Dark Secrets of Debit” reporting on how use of debit cards can actually be more dangerous for consumers than credit cards. You can read the article at ConsumerReports.org. It’s not that long, but if you don’t want to read the entire thing, I’ll summarize it very briefly for you here.
1. When making debit card purchases, the issuing bank collects higher fees from the merchants when the consumer opts for signature receipt as opposed to pin-number receipt. The difference is that the signature transactions are actually processed through a credit-card network, which takes a couple days for the withdrawal to occur. Pin-number transactions withdraws purchased amount from your account immediately.
2. Use of debit cards increase the risk of overdrafting in your checking account. When debit cards were first introduced, banks had to alert the consumers by blocking the transaction if the purchase amount exceeded the current balance. Now, the banks are not required to alert the consumers this way. They would simply tack on overdraft fees if the balance became negative. This will prove to be very costly for the consumers who carry a low balance in their checking accounts.
3. Retailers use blocking method to ensure they are paid. They often hold your funds that are greater than the purchase amount and then unblock the remaining if the total purchase amount is less than the blocking amount. This increases the risk of overdrafting in your checking account. This is common in hotel reservations and gas purchases. It’s hard for the consumers to know exactly how much is being blocked.
4. Consumer liability of fraud charges are much greater for debit card purchases than credit card counterparts. For credit cards, the maximum amount consumers will be liable for unauthorized purchases is $50. For debit cards, this amount can be as high as $500 if the fraudulent charges are not reported within two days of the transaction. The risk for the consumer in this case is very significant.
There you have it. Though there may be some benefits of using debit cards, the risk of using these cards greatly surpasses the benefits. I would recommend only using debit cards for those who are in the process of rebuilding their credit history and are trying to decrease their credit card balances. Then by all means, please use cash or debit.
If you’ve had a bad experience using debit cards, please leave a comment and share your story. I’d love to read about them.