Five Reasons Why You Should Not Use a Debit Card

Are debit cards a good financial tool for your money? Below are five reasons why you might consider using a credit card versus a debit card for your everyday purchases.

1) Unlimited Liability – If someone steals money out of your bank account by the use of your debit card information, it can cause a host of problems. It can create overdraft fees, unlimited loss if you don’t catch it in time, and financial hardship while the theft is being investigated. With a credit card, fraud carries an out-of-pocket limit of $50 per occurrence. Many credit card companies even waive the $50 limit. In addition, an unauthorized charge on your credit card is easily disputed and should not cause potential hardship.

2) Debit cards are becoming larger identity theft targets – According to a recent report, 33% prefer to use debit cards for in-store transactions versus 19% who prefer credit cards. As a result, identity thieves are becoming smarter when it comes to creating ways to steal you money. Thieves will use skimmers to steal your debit card information and then create another card for their own use. This first started happening at gasoline stations. Now, there are cases where it is happening in restaurants.

3) Online Fraud – Buying items online has become a fast and convenient way to shop. However, it can be a big problem when the store on the other end is really a scam designed to steal your money. If that happens with a debit card, you are out that money. According to Reader’s Digest, under the Electronic Fund Transfer Act, your debit card company isn’t required to step in if you make a deal with an unscrupulous merchant. With a credit card, your maximum liability is $50.

4) Potential to make mistakes – Your mistakes with debit cards are a big profit center for banks. It is estimated that Americans pay 18 billion dollars each year in overdraft fees.

5) With a debit card, you do not build credit – A debit card transaction is just a transaction between you and a bank and has no affect on your credit score. A credit card transaction that is paid off on time positively affects your credit score.

Copyright © 2008 Prudent Money and Bob Brooks. All rights reserved.