For those who have ample funds in the bank and want a foolproof way of protecting oneself from a mountain of unmanageable debt, the choice is a no-brainer: debit cards are the way to go. But before you go and totally write-off credit cards forever, here are some important truths you should know about using your own money (debit cards) over the bank’s free loan (credit cards).

Protection against theft varies for these two types of cards.

With credit cards, you are liable for only up to $50 of fraudulent use – period. If you are able to notify the issuer even before any fraudulent charge can be made, it will cost you nothing. For debit cards, your financial loss is also limited to $50 provided that you report the theft of your card or PIN code within two days upon learning of it. If you miss this time limit, your liability automatically jumps to $500.

Credit cards will put you in a better position when dealing with merchant disputes.

While in the process of settling questions on purchases made, you would be more at an advantage if you used a credit card for that particular transaction. This is because with a debit card, the amount would already have been debited from your account and you would have to wait for a settlement of the matter before any action to return those funds could be made. With a credit card, the bank or card issuer is charged for that purchase, not you.

Some retailers or service companies put a hold on your debit account.

Others term it as “blocking” your card. What happens is that if you use your debit card in a gas station for instance, the establishment puts a certain ‘hold’ or ‘block’ for an amount on your account, typically about $50 to $100. Even if you only use up about $20 of that, it would take a few days for the blocked amount to be accessible in your account again.

The same is true for service companies that require certain deposit such as a car rental service. A $40 rental fee could have your debit card put on hold for $300 more as deposit. Even when the car is returned, the $300-hold is not lifted right away; try 3-5 business days. This could result to overdraft problems in your account if you have allocated these funds for some checks, causing you to incur penalty charges.

Credit cards offer better rewards.

To make the competition between debit and credit cards more interesting, some debit cards have also taken to offering rewards programs in the last few years. The catch is, however, that credit card rewards tend to be more attractive than those available for debit cards. In some instances, banks give only 1 point for every $2 debit purchase as opposed to 1 point for $1 spent using credit. Additionally, with the introduction of rewards, some banks are now also charging annual fees for debit cards.

Debit cards don’t help you build your credit history.

Transactions that are charged to your debit cards are not indicated in reports to credit agencies much like those from credit cards are. In other words, whatever credit-worthy habits you have will not be reflected in your credit score if you stick to using a debit card. Remember that the credit record plays an important role in your financial life and any opportunity to build up that score shouldn’t be passed up.

Debit cards don’t come with the added benefits that credit cards have.

Care for free travel insurance when going on a trip or extended warranty for purchased items? These may be standard services for credit cardholders but most debit cards users don’t get to enjoy as much. For online purchases especially, getting a replacement or a refund for items that arrive broken or defective, can prove to be more difficult when using a debit card.

  • Bubba

    I have a debit card that is processed like a credit card. It has the VISA logo, and I receive all the benefits pertaining thereto (e.g. travel insurance, etc.) but the money just comes out of my checking account. Also, I have $0 liability for fraudulent charges. No rewards, but no fees either.

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