In an age of contact-less tap payment systems, it may be easier to quickly tap or swipe your debit card to make a purchase when you don’t have cash on hand.
Despite the ease and convenience of tapping your debit card, experts say there are also plenty of reasons you should be wary of using them.
“They’re good for routine transactions and certainly if you’re looking to keep your spending within limits, they do provide you a little bit better way to manage that,” says Leslie Tayne, a financial attorney and author of Life and Debt: A Fresh Approach Toward Achieving Financial Wellness.
“But for major purchases, credit cards are usually a better way to go because they will offer you more protection.”
The convenience of using debit cards may be outweighed by the risk of fraud. “I think it’s always a bad idea to use your debit card to make a purchase,” says Kimberly Palmer, the personal finance expert at NerdWallet.
“The only reason you should use your debit card is to withdraw money from an ATM or a bank.”
On top of that, by using a debit card, you’re missing out on the rewards you can earn from buying items with credit cards. So, here’s when you definitely don’t want to use a debit card.
When staying at a hotel
Debit cards are linked to bank accounts. When you use a debit card at hotels, employees will often put a hold on the amount of time that you’re staying, plus some extra money in case you have other charges. “That could definitely impact your ability to use the account for other expenses,” Tayne says.
When renting a car
Car rental services also place a hold on money in your account when you use a debit card. So you won’t have access to those funds while you’re using the vehicle, Tayne notes. That’s not a problem if you have plenty of money in the account, but it could lead to bounced checks and overdrafts if you don’t.
When travelling abroad
People travelling overseas are often buying things in unfamiliar places. That’s why Tayne recommended to her daughter that she get a separate debit card tied to a bank account with only a limited amount of money in it. “In case it somehow gets hacked, it’s not tied to the majority of her money,” Tayne says. “Because a debit card does tie right into money, versus a credit card that doesn’t tie right into your usable cash.”
When shopping online
Using your debit card to buy from websites can also put you more at risk. And if you discover a fraudulent charge, it can be harder to dispute when the payment is made with a debit card instead of a credit card. “Even though banks still have protections in place for you with your debit card, a fraudster could empty out your bank account before you even realize that your debit card has been compromised,” Palmer says. “And that’s a huge risk for people because people use their bank accounts to pay for all kinds of things, from utility bills to mortgages and rent.”
When you want to earn points
“If you use a credit card, you can earn rewards on all your purchases,” Palmer says. “That’s not the case with a debit card.” So if you’re looking to earn miles and rewards, get a credit card with those perks.
When you want to build your credit
Debit card purchases also don’t count toward your credit score. When you buy things on your credit card and pay off your balance every month, however, that helps build your credit.
When you want to keep tabs on your budget
While opinions may differ on this approach, it may be easier to organize your budget using a credit card because you can see all your daily expenditures in one place. “For me, it’s easy to analyze my statements instead of pulling out my bank account and trying to do it that way,” Palmer says.
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