Before you use that debit card

November 19, 2009 9:33:17 PM PST
This year holiday shoppers are bagging their credit cards and embracing the debit card. The reason is simple. They are spending their own money.

Financial experts call it a sign of the times. Consumers are playing it safe, but if you are choosing debit, there are still pitfalls and dangers.

For instance, bank fees. In order to maximize revenue, banks give you an incentive to choose credit over debit. They may charge you a small fee for some transactions if you use a debit card. The fee may be up to a couple of dollars.

We've listed some of the other problems and suggested solutions from the experts below:

Overdraft charges. Many banks will offer you protection, but beware of huge fee every time you exceed your balance,

Decline overdraft protection and have the bank alert by text or email you when your account is low

Limited protection. The law protects credit card users from liability if a product is damaged or if you don't get what you ordered. Banks don't offer the same kind of protection.

Whenever you buy online or make a large purchase, use a credit card.

Blocked off cash. If you use your card to buy gas, for example, the machine doesn't know how much gas you are going to buy. As a result, the machine will check to see if you have at least $50 or $100 available in your account. If the answer is yes, the retailer "blocks off" that $50 or $100. You might only by $10 worth of gas. Nevertheless, $100 will be blocked off for several days.

Keep extra cash in your checking account if you are using your debit card to make purchases. Give yourself a cushion.


Federal Reserve Consumer Handbook

Credit card information from the FTC