Debit or Credit – Which Should You Use?

Once upon a time, this would be a no-brainer. Debit cards used to just be something you pulled out at that ATM, when you needed cash. Remember cash? That stuff you used to buy things with? Unless it was something big, and then you used a credit card.

These days, every debit card has a convenient Visa or MasterCard logo on it, so you can use it to make purchases just about anywhere. You can even pay your friend for drinking that soda in his fridge, so long as he has a card swipe for his phone. Debit cards have become the ultimate convenience. Why carry cash, when you can just swipe?

The problem is, every time you swipe your card, you put yourself at risk for identity theft. Remember that major breach at Target? Or that huge Home Depot breach? Or that Ashley Madison scandal that’s making all the news these days? All of those involved compromised credit and debit cards.

I know I’ll never convince you to stop using plastic. I’m an identity theft adviser, and I’m not about to go plastic free. Cash is a hassle. And who has time to hunt down a cash machine that won’t charge you four bucks every time you want to take money out?

And let’s not forget online shopping. Try doing that with cash!

So when you do use a card, should it be a debit card or a credit card?

Credit cards offer the best protection against identity theft:

  • Credit Cards give you more time to detect the fraud. If someone charges something to your debit card, the money is taken out of your bank account immediately. Gone. When you use a credit card, your bank takes care of the payment and charges you for it later. You don’t have to pay it until you get that bill, which gives you a lot more time to identity the fraud.
  • Limited Liability. Most countries also have limited liability laws in place for credit cards. In the US, if you’re a victim of credit card fraud, you’re only responsible for the first $50 of illegal transactions. And the four major credit card companies actually lower that a zero liability. If you use a debit card, there is also a $50 limited liability, but that only applies if you let the bank know within 2 days of discovering the fraud…which means you better open your statements right away! If you don’t, you’re looking at a $500 liability amount…or more (after 60 days, it’s all on you!).

Of course, your financial adviser will probably tell you to use a debit card, so you won’t be hit with interest at the end of the month or risk carry over a balance. But that’s another issue altogether. If that’s something you’re worried about, it may be best to go with a balanced approach…and use cash whenever possible. Remember, that debit card still works at your ATM.

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