Money Girl reviews risky situations when you should never use a debit card—plus, your liability and consumer rights for both debit and credit cards.
6 Risky Situations When You Should Never Use a Debit Card
Now that you understand the potential risks associated with debit and credit cards, here are 6 risky situations when I recommend you never use a debit card:
Situation #1: Shopping Online
Whenever someone tells me that they don’t need a credit card because they simply use their debit card to shop online or make travel reservations, I cringe!
One of the most important rules for using debit cards is to never use them online. It doesn’t matter if you’re buying shoes, getting concert tickets, paying your power bill, or booking a cruise vacation.
Buying anything online using a debit card makes you vulnerable to a cyber criminal who could steal your card number and drain your bank account linked to the card—unless you watch your transactions like a hawk and would catch fraud immediately.
Situation #2: Making a Large Purchase
When you make a big purchase, like furniture, electronics, or appliances, you get much less protection if you pay with a debit card instead of using a credit card.
For instance, let’s say your furniture is delivered and you find damage that occurred during shipment. If the furniture company won’t reimburse you or exchange the merchandise, you can dispute the charge with your credit card company.
The card company will reverse your payment to the merchant and inform them that they’ve opened a dispute on your behalf. But if you paid with a debit card, the money is taken from your account right away. The only way to settle a dispute might be to begin an expensive lawsuit.
Additionally, many credit cards also offer extended warranties. So, if your new television has a 60-day warranty, but the display goes bad after 90 days, your credit card might protect you.
Of course you should only use a credit card if you can pay off the balance in full or if you’re intentional about financing a planned purchase using a low-rate credit card, so you pay no interest or as little as possible.
Situation #3: Dining Out
Using a debit card in a restaurant is especially dangerous because they’re one of the few places where the card leaves your sight. The server takes it away to process and you have no idea what could have happened.
Of course, someone could also steal your credit card number. But as I mentioned, since your potential liability is so much less with a credit card, paying with cash or a credit card is a smarter way to handle a restaurant bill.
Situation #4: Buying Gas
When you swipe a debit or credit card at the pump, some gas stations place an immediate hold on your account to make sure 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. While this practice is almost unnoticeable on a credit card, it can be a real problem with a debit card.
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.
Situation #5: Making an Upfront Deposit
Anytime you need to pay an upfront deposit for goods or services, never use a debit card. Some examples include booking travel reservations, making a deposit to order cabinets or flooring, securing freelance services, or renting equipment.
As I previously mentioned, once a debit card charge is processed and money is withdrawn from your account, it’s gone. On the other hand, putting a deposit on a credit card gives you the ability to dispute the charge and get your money back if something goes wrong.
Situation #6: Setting Up Automatic Bill Payments
While I love the idea of setting up recurring payments to make sure expenses like loan payments, gym memberships, and utilities never fall through the cracks, it can become a bookkeeping nightmare if you don’t keep a cash cushion in your account.
To protect yourself from bank overdraft fees, consider setting up automatic payments on a credit card instead.
Free Resource: Online Bank Comparison Chart (PDF) download
Should You Use a Debit or Credit Card?
Since dealing with fraudulent charges on a credit card is easier and less costly than with a debit card, be cautious about the six situations that I covered—or paying with debit at any establishment that seems questionable.
If you have enough discipline to pay off credit card balances in full each month, they should be your primary payment method. Not only do they give you more security and purchase protections, but they also help you build credit, give you a precise record of your expenses, and allow you to earn rewards.
All of these benefits are free, as long as you pay your credit card bill in full every month. The trick to using a credit card successfully is to pretend that it’s a debit card, so you never charge more than you can pay off right away.
But if you’re not ready to use a credit card for all your purchases, simply being informed about their pros and cons compared to debit cards will help you make smarter financial decisions.
If you're ready for help managing debt, building credit, and reaching big financial goals, check out Laura's private Facebook Group, Dominate Your Debt! Request an invitation to join this growing community of like-minded people who want to take their financial lives to the next level.
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