March 27, 2018

When To Avoid Paying With Your Debit Card

When to avoid paying with your debit card

Increasingly, people are using cards to purchase nearly everything. I prefer to use cash for small purchases, which occasionally earns me a dirty look from someone at a cash register when I hand them $20 and they realize that he or she has to… make change?!?

Despite the many advantages of using a card for purchases, there are drawbacks. Over the years I have had my credit card information stolen a few times. Thankfully, I have never had to pay anything for fraudulent purchases made on my Visa. I didn’t realize how lucky I was until I heard a horror story from a friend who had her debit card information stolen.

Debit Cards vs. Credit Cards

There are differences between debit cards and credit cards and after reading this you may decide to stop using your debit card all together. The obvious difference is that debit cards immediately remove funds from your bank account rather than committing to a charge that you will pay at a later date. The Fair Credit Billing Act only leaves you liable for up to $50 of fraudulent charges on a credit card. The four major credit card companies all have fraud protection that should leave you liable for $0.

If you have ever had a debit card stolen or know someone who has, you probably know that your liability (and headache) can be significantly higher. Your maximum liability is $500, but many banks offer better protection. The bigger issue is that the processing of refunds for fraudulent charges can take months and in the meantime that money is missing.

Protecting Your Information

So how can you protect yourself? Well obviously start with using credit rather than debit cards when possible. Also know where your data is at risk. Some high-risk places to be aware of:

  • Gas stations with a card reader at the pump
  • Self-checkout lines in grocery or large retail stores
  • Restaurants
  • Smaller online retailers

Criminals generally use one of two methods to steal card information:

  1. Hacking into computers to watch your transactions. Most transactions are secure. However, software that “watches” your screen may make finding your data quite easy.
  2. Using a skimmer, which is a tiny device that can be attached to or inserted inside a card scanning machine at a self-checkout line or gas station. The skimmer copies your information, even as the legitimate transaction is taking place.

I have had my credit card information stolen and used for fraudulent transactions three times (I tracked the culprit to a local restaurant I no longer frequent) and my wife has had her credit card information stolen three times as well. To date I have not lost any money, but I have had to wait as long as one week for a new credit card.

Oh, and one last thing! Many credit cards offer extended warranties. American Express automatically doubles the length of any warranty on a product that you purchase with its card. This saved us from buying a new phone for my wife once and I will never forget that experience.

Bottom Line: Be very careful with debit cards. Ideally, they are for withdrawing cash from your bank’s ATM. Be conscious of where you use any card and understand the risks.

 

From the desk of Kris Carroll, CFA®, CFP®

Financial Literacy, Identity Protection

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