Debit Card Drawbacks

December 8, 2009 12:00:00 AM PST
Holiday shopping is in full swing. But 12-million people still have purchases on their credit cards from last year. And debit cards may not be the best choice either.More and more people say they are using their debit cards to avoid running up credit card debt.

Chris McIntyre said, "I can control my money that way. I know what I can spend and what I can't spend."

While this is a plus with debit cards, Consumer Reports money adviser says it can be a mistake to use debit cards for big holiday purchases - or even small ones you might want to return.

Consumer Reports Mandy Walker said, "With a debit card, if you have a problem with the purchase, you can't dispute the charge the way you can with a credit card."

And for big-ticket items like electronics, debit cards rarely give you a longer warranty, something you get automatically with many credit cards.

Consumer Reports also advises against shopping online with a debit card. If your security is compromised, thieves can drain your entire bank account.

"And if you don't report fraudulent activity on your debit card within two business days, you can be on the hook for 500 dollars or more. With a credit card your losses are limited to 50 dollars," said Walker.

Another big minus with debit cards, if you spend more than you have in your account, you'll likely be socked with hefty overdraft fees.

Consumer Reports says for small purchases that you're not likely to return, using a debit card is fine. But if you're concerned about identity theft, press the "credit" option when using your card - not the "debit" option. That way you don't have to punch in your pin, which identity thieves target in order to steal money from your bank accounts.

If you don't have a credit or debit card, you may be tempted to use prepaid gift cards, but Consumer Reports says these can be a bad deal.

Walker said, "There may be a fee to activate it and a fee every time you use it. There may even be a fee when you don't use the card."

So this holiday season, using a credit card is a smart money move, but only if you keep your balance under control and pay it off promptly.


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