6 Reasons to Reconsider Using Your Debit Card
Debit cards are popular for lots of reasons: they’re convenient, usually don’t have fees, discourage overspending, and don’t charge interest. But they also have more than a few drawbacks. At BookWerksTM professional bookkeeping service, we suggest clients use debit cards sparingly–primarily as a way to withdrawal money from ATMs. Here are a few reasons we prefer credit cards to debit cards.
Limited Fraud Protection
Debit cards don’t offer much protection from fraud. With credit cards, liability for fraudulent transactions is often limited, but debit card users can find themselves responsible for charges they didn’t make. If someone gains access to your debit card information and makes unauthorized purchases, you may be held liable for the losses until the issue is resolved, which could take both time and effort.
Direct Access to Your Bank Account
You may not have realized that when using your debit card, you are giving merchants direct access to your bank account. You run the risk of your card information falling into the hands of identity thieves–or scammers eager to run up high tabs on your card. With credit cards, you at least have an extra layer of protection, because you are not using your own money directly.
Limited Dispute Resolution
Resolving disputes with merchants can be more challenging with a debit card. If you have an issue with a purchase made from your debit card, like if you bought a defective product or the merchant overcharged you, resolving the situation can be maddeningly complex and time-consuming. By using a credit card instead, you will typically not pay until the problem is resolved (depending on the card).
Impact on Your Credit Score
Want to build your credit? You don’t build or improve your credit score when buying things with your debit card like you do while using credit cards*. A good credit score is important if you want to
- take out a loan,
- buy a home or
- get friendly interest rates on major purchases like cars or houses.
Using credit cards responsibly (*like paying off your balance every month before accruing interest) can show your creditworthiness and build a positive credit history.
A big debit card hazard is accidentally overdrawing your account. If you make a purchase that empties your account, you may find yourself facing ugly overdraft fees. These can quickly add up, further straining your finances. Credit cards usually have predefined limits. Going over them often leads to penalties, but they may not be as severe as overdraft fees.
Limited Rewards and Perks
A debit card simply utilizes the balance in your bank account to pay for goods and services. But most credit cards have reward programs that let you earn cash back, travel points or other goodies. With debit cards, you miss out on these benefits, which can build up over time and help you get more for your money. Hello free trip to Cancun!
To avoid all these risks, use caution with your debit card. Look back over your purchases often, and consider utilizing credit cards instead, which, if used properly and responsibly, can provide more protection and valuable perks. You may have to exercise a bit more discipline in your spending, but the added security and benefits will be worth it.