Master Your Card » Debit Cards

When and Why to Avoid Using Your Debit Card

Kelly — Thu, 15 Sep 2011 11:20:30 +0000

When it comes to debit cards, many of us find them incredibly convenient and less of a burden than credit cards. After all, not only do retailers appreciate the lack of added-on credit fees, but it prevents you from racking up loads of debt by limiting you to only what you currently have in the bank.

In spite of these advantages, however, there are some times where you should refrain from using your debit card. The following is a guide to help you determine when you should and shouldn’t opt for debit charges.

Restaurants

It may be convenient to pay for food and other non-durable expenses with a debit card; however, a restaurant is not the place to use it. People can get your card number and easily steal your information when you’re not looking, so when it comes to paying for the bill at a restaurant, it’s better to let a waiter or waitress momentarily walk away with a credit card, or simply pay in cash.

“Free” Credit Reports

When people are struggling with debt problems and looking to obtain a free credit report online, often this service is far from free. In order to get your results, these sites ask for your credit or debit card information after you’ve already filled out a majority of the survey, in order to convince you that this is the last necessary step to check your credit history and rating.

Unfortunately, many people are charged monthly fees for this service if they don’t cancel immediately upon finishing the credit check, and this can continue unnoticed for several months. Many people checking their credit rating have already cut up their credit cards, and use a debit card to pay for this service. Because the charges can not be contested or reversed once the funds have been taken from your account, avoid using your debit card for any of these sites.

Anywhere on the Internet, Really

Beyond credit report websites, you really ought to avoid ever entering your debit card information online unless it’s from a highly secure site with SSL encrypted technology as indicated by a padlock icon next to the site address. Otherwise, it could be quite simple for an experienced hacker to steal your debit card number and use it for their own shopping sprees while your bank account slowly diminishes.

For Petrol

When filling up the car, you must proceed with caution, as there are a few people out there with high-tech gadgets that allow them to essentially watch you as you pay for petrol, and abuse the information for their own financial gain. Not all stations are secure, making it a risky venture for anyone looking to purchase petrol with a debit card.

So, when it comes to using your debit card, be very careful about where and when you use it. While it may be easier on retailers to use debit because, unlike credit cards, there are no fees associated with them, it’s still quite dangerous considering the immediate depletion of funds from your bank account upon the swipe of a debit card. As long as you protect your debit card and use it wisely, however, you should be safe from identity theft and financial losses.

Image by MoneyBlogNewz

Credit or Debit? It’s Becoming Harder to Tell the Difference

Jack — Thu, 03 Sep 2009 12:30:55 +0000

Last March, we did a breakdown of debit cards vs. credit cards to show you the differences between the two plastic doppelgangers. Fast forward two years, and suddenly, the ying is starting to look and act a whole lot like the yang. Debit cards are accepted everywhere a credit card is, have rewards programs and, hey, they even have hidden fees and nefarious traps. But why are debit cards acting a lot more like credit cards these days? According to DailyFinance, it’s because credit cards are dead. And it wasn’t even Obama who killed them.

It was you! You and me, that is – the consumers. We were fed up with the wavering interest rates, devastating fees and bruises to our credit history. But instead of kicking the plastic, we eased down to a reasonable facsimile: the debit card. It works like a credit card, it looks and (probably) tastes like a credit card, but because you’re drawing from your own bank account and not being charged any interest, it’s a much smoother ride with less surprises.

Debit Cards Close the Gap

According to eCommerce Journal, Visa customers’ debit card spending surpassed their credit card spending in 2008. Visa cardholders spent $206 billion in debit purchases – mostly on necessities, like food and clothing – and $203 billion in credit purchases. Those figures aren’t widely different on theri face, but consider this: this is the first time in history that debit card spending has exceeded that of credit spending for Visa. The paradigms are shifting.

Debit vs. Cash: No Contest

While consumers cite greater convenience and security over cash and checks as one of the main boons of debit, card issuers are doing their part as well to promote debit card usage. With features like Zero Liability from Visa and PayPass from MasterCard, debit is simply the easiest way to pay. While a thief can nab your wallet or forge a check, your debit card has certain built-in protections that safeguard your assets in the case of identity theft. Even if you are victim of a skimming or phishing scam, you can quickly control your damage with a quick call to your card company – in most cases you’ll be liable for less than $50, even if the crook wipes you out. Plus, when you pay with a debit card you don’t ever have to deal with those pesky pennies.

You’ve Got Rewards!

But perhaps more significant to the shift is in rewards. One of the main hooks of credit cards has always been the opportunity to accrue points, cashback and other free stuff from your spending. These perks drove shoppers to use cards even when they had the cash on hand. The most responsible ones would simply pocket the points and pay off their balance as soon as they got home. But with card issuers offering rewards programs for debit purchases, there’s no need for this slice of the cardholder pie to even bother with credit cards. Things work out nicely for the issuers, too – retailers have to kick back upwards of 2.1% per debit transaction.

Here Come the Catches

Still, that 2.1% per swipe is, apparently, not doing enough for the card companies’ bottom lines. Those fees from over-the-limit spending, finance charges, late fees and membership costs that caused cardholders to flee from credit in droves are exactly what were making card issuers weathy. But like rats abandoning a sinking ship for one that’s afloat, those parasitic caveats and gotchas have followed the crowd to debit cards.

Since the beginning, the danger of overdraft has existed. But now, instead of reeling you in when you overstep your checking balance by denying your card, banks and issuers are automatically fronting you the money so the transaction goes through. You won’t know your overdrawn until the next time you look at your statement. Meanwhile, the bank charges you a hefty $25 to $35 fee per transaction for the “convenience” of covering you while you were short. It’s a racket that’s earning banks upwards of $38.5 billion in overdraft fees.

This may be preferable to having your check bounce and your utilities or mortgage payments become delinquent. But anyone who has come to the cold revelation that they are overdrawn only to next discover that they’ve been charged hundreds of dollars of overdraft fines on top of it is unlikely to rejoice.

Push Me, Pull You

Meanwhile, while debit cards are starting to resemble credit cards more, so too are credit cards changing. One of the main reason why debit wins over credit is the danger to a consumer’s credit rating, or a credit history that is already prohibitive of a traditional credit card. But with new prepaid credit cards, even those with little or bad credit can carry a card. The credit limit of a prepaid credit card is commensurate with how much the cardholder pays into the account. So, if the holder prepaid $1,000, he or she could spend $1,000 – after that, the card would be denied.

But wait a minute – isn’t that exactly the same as a debit card? Replace “credit limit” with “checking account balance” and basically, yes, it is the same. But the important difference is that, as of now, the credit bureaus still consider prepaids credit accounts. That means you can slowly build your credit using them (though likely no better than with a secured card). However, as with all cards for those with bad credit, there is a circuitous labyrinth of fees and terms. Plus, the system is somewhat rife for exploitation – meaning that FICO might take preventative action, much like they did in order to stop piggybacking.

But the moral of the story is this: as restrictions on issuers (such as the C-Card Act) continue to make debit cards more competiitive, card companies will begin making changes in order to keep their earnings up. And until Obama comes up with a Debit CARD Act, you may have to be just as vigilant with your debit card as you were with your credit card.

Photo by: Auntie P

Who Do You Trust With Your Debit/Credit Card?

Kristy — Tue, 28 Apr 2009 08:57:19 +0000

It always amazes me how willingly people hand out their account information, even something as simple as a debit card. Admittedly, I’ve let my boss run over to Chipotle to get lunch with my debit card, but I’m a little more secure in the fact that she’s not going to try anything funny being my boss and all. Plus, I trust her personally. There are very few people in this world I’d give my card to, though. For others, it’s not a big deal at all and I just wonder why that is.

A member comes to see me earlier this week and she’s in a state of tears. I get her calmed down enough to tell me the problem and it goes like this. She’s being abused by her children and they’ve taken her debit card and her account is about $750 overdrawn – she elected to have what we call privilege pay, which means we’ll pay the items up to a certain dollar amount but she is charged fees for that. In the members case, her limit is $700, but she’s been hit with some fees.

Now, prior to the abuse starting she said she would give them her card and allow them to make purchases whenever they needed something. But, these occasional times began to turn into a habitual thing and when she began saying no is when her kids started acting out. On top of that, she’s had to replace her card twice because it was “lost” according to the kids. She said she got a call from the police once saying they’d picked up a kid running drugs and he had her card in his wallet and did she want to press charges.

The story continues to go downhill from there and frankly, my first instinct was to call social services for the woman and stay out of it. It’s a lot of drama and there’s a lot going on that is well beyond my expertise. But, I do have a responsibility to help her with the account, so that’s what I planned to do there. Except, that proved to be very difficult because she wasn’t willing to cooperate.

In order for me to help her we would need to cancel the current card, submit the fraud paperwork, and file a police report. However, she didn’t want to file a police report because she didn’t want her kids to get in trouble.

Come again?

They’re physically abusing her, stealing her debit card and her money, and she’s so afraid to go home that she’s been staying with a coworker and she doesn’t want to get them in trouble? Sounds to me they could use a little trouble to straighten them out. At any rate, this moves beyond anything I’m capable of handling so I grab my boss and let her take over. Somehow she convinces this woman to file the police report so we can help her with the account. We actually ended up closing down the old account and getting her a brand new account, just in case the kids had the account number as well. We also instructed her to make sure she kept her card in a safe place at all times and she’d get her money back within 48 hours.
In any event, my point to telling this story is to warn you on just handing over your debit or credit card, even if it’s to a friend or family member. We obviously want to trust those we’re close to, but the reality is that oftentimes, mixing money and relationships can be detrimental to the relationship. I’m sure this member never thought her kids would do such a thing and she had several theories on what happened, but she’s got a lot of issues to work through on this and it started by handing over her debit card.

I have other members, albeit not with so much drama, come in and ask us to help them because they’ve given their card to boyfriends or girlfriends, friends they thought they could trust, or even family members and those people have taken advantage of the card. We see it a lot, and in most cases there’s not much we can do because you willingly gave them your account information. It’s now a domestic issue. We’ll do what we can, but it is a risk you take when you give your card to friends and family.

My question to you is: are there people you would give your debit or credit card to? Have you experienced any problems as a result of trusting someone with your card?