Published by Zachary Langan
Do you use a debit card to make purchases? Do you feel you are being financially responsible by using your debit card instead of a credit card? Many consumers are unaware of the security risks and extra liability they are creating by using their debit card rather than a credit card.
Before we discuss the concerns of using a debit card, let’s address the elephant in the room. We all know someone – a parent, friend, co-worker, maybe yourself – that fell into a terrible debt, many times related to credit card debt. Avoiding this debt is paramount to your financial wellbeing, and the decision to use a credit card should include an honest review of your ability to live within a budget.
If, on the other hand, you feel confident in your ability to control your spending, using a credit card for day-to-day purchases and fully paying off the credit card at the end of each month is the best choice. Doing so means you will not pay interest. Not only is the credit card much safer, but it also can provide rewards, discounts, insurance coverage and other benefits.
We understand identity theft and hacking is rampant and only becoming more common. However, many people do not understand who is legally liable for fraudulent purchases on their debit card. This highlights the key security difference between a debit and credit card.
By law in the US, all fraudulent credit card purchases are the responsibility of the credit card company. That’s an enormous benefit and protection to an account holder. Credit card companies bear the full burden and are incentivized to bolster the security of their systems.
However, a debit card user is legally responsible for fraudulent charges and can legally be held to pay. There are occasions where banks will cover fraudulent charges, but they are not required to. If the fraud is too large, or the bank just doesn’t feel inclined to cover it, the account owner user must foot the bill. Legally, it is the account holder’s burden.
This means, whatever money you have in your bank account is the amount you can lose if a thief decides to make fraudulent charges using your card information. On top of that, most banks will let purchases be made after the account is empty. Add overdraft and insufficient fund penalties to the empty bank account and the risk get larger.
If one still wishes to use a debit card, a helpful tip is to move money into an account not connected to their debit card, like a savings account. While this won’t reduce the potential for fraud, it reduces the amount of money you have at risk.
The best option is to not use or keep a debit card at all. It’s even possible for the bank to provide you with an ATM-only card. This card comes without any charge capabilities, so you can still enjoy the convenience of an ATM.
Increased security should be reason enough for many people to use a credit card for their day-to-day purchases rather than a debit card, but the benefits don’t stop there.
Surprisingly Large Benefits
The credit card industry is highly competitive, and companies highly incentivize their cards, so people choose their company over another. There are plenty of resources available that make it easier than ever to compare cards. The consumer is really benefitting from all the transparency and competition.
If you use your credit card as a debit card alternative and pay it off at the end of each month, you get benefits without paying any interest. Credit card companies have gotten quite creative with these benefits, including but not limited to:
• Cashback (as high as 6% on certain types of purchases)
• ‘Reward’ dollars or points
• Credit score tracking tools
• Budget creation tools to track your spending as you go
• Rental car insurance coverage when reserved using your card
• Discounts on airfare and other brand partnerships
• Early access to purchase concert tickets and other events
For most, cashback is the biggest attraction. It’s not uncommon to see cash back of 3% at gas stations, 6% at grocery stores, and 1-1.5% everywhere else. The percentages may seem small, but when most of your daily spending goes on to a single card that really adds up.
Safety and security are the primary reasons to use a credit card instead of a debit card, with rewards and benefits rising closely in second. When we pay off our credit card each month, these valuable benefits are essentially free. The cost to us is having disciplined spending and sticking to our monthly budget – something we should all being doing anyway, regardless of how we’re paying for our purchases.