Monday, May 30, 2011

Debit Cards Vs. Credit Cards - How do They Compare?

Visa Debit card from Bank of AmericaImage by MoneyBlogNewz via FlickrGetting and staying out of debt requires you to stop using your credit cards. You are so determined to avoid credit card debt, you have cut up your credit cards and have gone to exclusively using a debit card instead. You feel good about not using the credit card anymore. All is well.

But wait are there any downsides to using your debit card as your exclusive plastic? It's time to find out what's the difference between a credit card and a debit card.

Lets say your debit card number is used for some fraudulent transactions. A bad guy buys himself a nice new Rolex with your debit card number. This transaction wipes out your bank account. Your checks bounce because there isn't enough money in your checking account. By the time you find out about the illegal charges your money is gone, you have over draft fees, your bills have late fees now because the checks bounced, and your money is gone.

What can you do about all this. Does your bank take off these extra charges.? Will they put your money back into your account? How long will all this take for your account to be put back in order? What are the responsibilities of the bank? Whats the time frame for the money being put back?

Here are a few Debit card facts:

  •  With a credit card, your maximum liability guaranteed under federal law in case of fraud or errors is limited to $50 if you notify the card issuer within 60 days after the statement listing the transaction is mailed. With a debit card, the $50 liability limit expires two days after the fraud, and then your liability goes up to $500. And you don't necessarily have protection against errors.
  • Banks' "zero liability" promises are voluntary and squishy; they're not the law and they're not immediate.
  • If you use a debit card and a fraudulent charge or a billing error causes other payments to bounce (like your mortgage or cell phone payment), you will be hit with hefty overdraft fees and will probably have difficulty getting the fees refunded.
  • Credit cards offer protection under the federal Fair Credit Billing Act, meaning you can refuse to pay for products or services that you didn't get or are defective. There's no such protection with a debit card.
  • Debit card authorizations can tie up your money. A merchant such as a gas station or hotel may put a three-day hold on more money than you're spending. You won't be able to use that money until the hold ends. That could cause other payments to bounce even though you have enough money in your account.
  • If you buy something with a credit card and the merchant makes a mistake, say by billing you twice, the bank will fix it.
  • With a debit card, however, banks are really sketchy about what protection they offer if the merchant goofs. You're protected against "unauthorized use," but many banks don't consider errors to be "unauthorized use." They say because you authorized the merchant to debit your checking account, the matter is a "billing dispute" that you need to work out with the merchant.
  • If you do have a problem with a credit card transaction, you don't have to pay the amount in dispute while it's being investigated. With a debit card, the money is already gone.

If money is stolen from your checking account by the use a stolen debit card number it can take up to 2 weeks to be put back. This is frustrating for the consumer and this would not happen with a credit card.

But if it is your choice to use a debit card and not a credit card. To be on the safe side it's not smart to have a debit card linked with an account that has a lot of money in it. Or get just an ATM card with no charge card features.

No comments:

Post a Comment

Join 1000's of People Following 50 Plus Finance
Real Time Web Analytics