The Downside Of Debit Cards

Consumers have, by now realized that overusing their credit cards is a financial risk not worth taking. Which is why, while consumer spending on credit cards just a few years ago was quite high for the past holiday season, this year, consumers cut back and opted for alternative payment choices instead, such as with checks, cash and with debit cards.

Debit cards are fast overtaking credit cards in terms of popularity among consumers. The continuing disenchantment among consumers with credit cards is further fueled by the consumer-unfriendly term changes that credit card companies are doing. This has resulted in consumers moving away from credit cards and favoring cash, checks, debit cards and other modes of payment instead. Debit cards are becoming popular because consumers still want to enjoy the benefits of using plastic for payment without the risks of paying with credit. Also, banks are pushing debit card usage as it is more profitable for them than when consumers use cash, checks and other forms of payment.

However, the quick rise of debit card usage may have overtaken the need for consumer education about how safe debit cards can be. Like credit cards, debit card have its share of risks as well and the risks are actually higher for debit cards than credit cards.

For instance, in the case of theft, credit card holders have their liabilities capped at $50. MasterCard and Visa will assume all unauthorized purchase liabilities. This is not present with debit cards. However, if a debit card holder gets his card stolen, banks will generally credit their account, even if provisionally. If card holder proves to be responsible – meaning he isn’t continuously calling in his card as stolen – then it is highly probably that the bank will assume all liability. Also, when debit card holders use the signature side of their MasterCard or Visa debit card instead of using their PIN, they are given the same protection as with credit cards.

In the case of disputes, credit cards win over debit cards once again. With credit cards, the card issuer can hold payment while the dispute is being investigated. With debit cards, the amount has to be reimbursed into the account. Credit card and debit card policies for MasterCard and Visa are actually similar, though card holders may have to have signed for their purchases for it to be covered. Generally, when the debit card holder uses his PIN, it is the card issuer who ultimately decides on the validity of the dispute.

For those who are concerned with their credit scores, it is also important to know that using a debit card does not affect their credit score, positively or negatively. Whereas credit card payments get reported to credit bureaus, debit card usage do not.

Finally, debit cards give much less generous rewards than credit cards. A $1 purchase with a credit card may amount to one reward point while, with a debit card, it could take a $4 purchase to earn that reward point.