Beware the Debit Card

As a society, we love the convenience that comes with swiping a piece of plastic. However, many of us are wary of credit cards. Debit cards, though, are connected to your checking account, so, in theory, what you spend is what you already have in the bank. As long as you are careful to record your transactions in a ledger or using personal finance software, you can still enjoy the convenience of plastic without the worry of debt. However, it is important to understand that debit cards come with their own risks:


One of the main issues with debit cards is the hold. This happens mainly at gas stations, rental car places and hotels. It’s one of the main reasons that using a debit card for travel is such a pain. When you use your debit card, there are establishments that place an extra hold on the money in your account. At the gas pump, the authorization is high so that you can get the amount of gas you need. At the hotel, extra money is claimed from your account, just in case you order room service, break something or wrack up other “incidentals.” While your money won’t ultimately be taken from you, while the hold is in effect, your funds are unavailable. That means you could end up with overdraft charges or other problems. You think your money is there, but it isn’t accessible to you.

Fraudulent Charges

Another issue is the way fraudulent charges are handled on a debit card. While your losses are limited to $50 — like a credit card — there is a catch. You have to let your bank know that there is a problem within two days of learning of the theft. If you don’t keep tabs on your account, you could lose your chance to limit your losses. Make sure that you understand the fraud liability terms associated with your debit card.

On top of that, with your debit card the money is gone immediately. When a credit card is used, and you discover problem charges, you can have the payment stopped. However, since the debit is taken directly from your account, the money is gone. While you may not be liable for the charges, it can take weeks for the bank to review your situation and put the money back, leaving you without access to your money.

The issue is the same with merchant disputes. Once you pay with debit, the money is gone, and you have to fight hard to get it back if product or service you received is not what was promised. Meanwhile, you are out the money, which could affect your ability to pay other bills.

Protecting Yourself

In order to protect yourself from these issues, you need to plan ahead. Make sure you have adequate money in your account to cover holds, or use a credit card dedicated to that purpose. Then pay off the credit card immediately so that you aren’t carrying a balance. Do what you can to protect yourself from fraud, by limiting where and when you complete debit transactions to avoid identity theft through such methods as skimming. If you have the discipline, you can do most of your spending with credit cards, paying them off as you go.

Another option is to use cash for most things, and to use secure third-party payment processors (like Amazon Payments, PayPal and Google Checkout) when you are shopping online. However, many people find that carrying large amounts of cash is dangerous itself, especially if your wallet is lost or stolen. Limiting the number of cards and amount of cash you carry can help you protect yourself, and that may mean carrying a credit card that you pay off every month.

14 Responses to Beware the Debit Card

  1. The point is the balance of power. In the case of a debit card, you’re stuck begging the bank to give you your money back. In the case of a credit card, you can tell them that you’re not paying a dime until they correct the problem.

    Moral of the story? Don’t be one of those idiots that thinks credit cards are free money. Know how much is in your bank account, and use your credit card accordingly.

  2. The section on fraudulent charges is misleading. If your card is stolen, you must report the theft within 2 days to limit losses to $50. If you report it after 2 days, the limit is $50 of the charges on the first two days, plus the charges after those 2 days, with a total limit of $500. Fraudulent spending tends to get flagged pretty quickly by banks and the card shut off. Banks want to limit their losses, too.

    Note that the previous rules pertain to missing or stolen cards. If the card is not missing, but you have fraudulent charges, you have 60 days from the day the bank mails the statement out to report it.

  3. I can vouch for that. Two years ago, I was using Fifth Third Bank (crooks) and I was going to the ATM to pull out some $$$. I know for a fact I had AT LEAST $300 in my account. A slip printed out saying insufficient funds, so I did a balance inquiry and it showed I was $400in the hole. So, someone jacked $700 from me and Fifth Third didn’t lift a goddamn finger to help.

  4. Great post. I’ve been warning consumers for years about the difference between debit and credit cards. And there is one more danger to consider also, debit cards don’t help you build and maintain good credit.

  5. My husband, who charges almost everything he buys sent me this. I like to use cash, checks, and sometimes debit cards. I’ve asked local businesses, and they prefer debit because they get charged less. If they take checks, I use those.

    I have never had problems with identity theft so far, but we have had information from 2 different credit cards get stolen, and a bunch of stuff charged on them. A computer company from another state called us to see if we’d charged a couple thousand dollars worth of computer equipment. The first order had already been shipped, but they got the second one stopped.

    It’s my opinion that everything we buy costs more than it would if everyone used cash or checks for local purchases.

    I realize I’m not going to have many agree with me, or change anyone’s mind, but I felt moved to express my opinion.

  6. Go to your bank and ask them to re-issue your debit card without a VISA or MC capability. It will then only be usable at ATMs and grocery stores (anywhere where you have to enter a PIN). Then get a separate VISA or MC credit card that is not associated with your checking account. Many bank clerks don’t know that you can do this, but you can. Just ask for a manager. Then your checking account is protected if you lose your debit card because you NEED the pin to use it, and you can still charge things normally on your credit-only card.

  7. If we can manage to keep our car on the right side of the road and not kill ourselves with kitchen knives, certainly we can operate a credit card that gives us the maximum protection and consumer rights in a way that controls spending.

    How about sending the payment for any charge when you get home. That makes it work just like a debit card.

    Or how about subtracting the amount of the purchase from your available balance in your checkbook register so you are setting aside the money for when the bill comes?


  8. I’d also suggest paying any ‘deposits’ on a credit card vs a debit card or cheque. If the company goes bankrupt before you receive your goods, it’s soooo much easier to get the credit card company to reverse the charge (it’s a clear case of not receiving what you paid for) vs a debit card. So if you put a deposit on an appliance, pay with the credit card!

  9. Great tips! For ideas on how you can take charge of your own health care costs, check out

  10. There are definitely mechanics that make debit issues different than credit issues, but Visa, for example, vows that they’ll protect you on their site – debit or credit.

    The one thing that I would say about the fear of carrying “a lot” of cash is to “not carry a lot of cash.” Carrying an “appropriate” amount of cash could be a good alternative (i.e. no need to carry $500 to dinner, but maybe if you’re going to buy a new computer or tv). You’d be surprised how many discounts you could get just by asking and paying cash – especially at local or mom and pop shops. And I agree with red that many people spend less when they’re not putting it on credit.

    I was at a baby store the other day and the saleswoman, who knew I was paying cash, dropped a price from 99 to 89 without me asking and then in response to the blunt question of “how low could you go if I haggled with you very aggressively” (serously) dropped the price to $64!

  11. A friend of mine had his bank account drained as a result of using his debit card at a gas station. I will only us mine as a credit card whenever we go to a convience store. It is too asy for the employees to steal your money…all they need is you card number and your pin number and your bank account is toast.

  12. These are all excellent reasons I use a credit card. Credit cards are only problematic if you buy before you can pay. My wife and I stick to a budget, but use credit cards for the transactions.

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