If you’re a college student, you probably have a few numbers on your mind: the number of days until you head to campus, your GPA from last semester, the amount of money you’ll have to spend on furnishing your dorm room this year, etc. But what about your credit score? It could be one of the most important numbers in your life that’s not on your list. Your credit score can impact whether or not you can lease an apartment or whether or not you’re offered your dream job.
I have the world’s cutest credit cards. My Visa card is covered in zebra print, my Discover card is pink with stripes, and my debit card has Betty Boop on it. I love my plastic and love the convenience of swiping a card, and not having to carry cash.
Lately, I’ve been whipping out the Betty Boop a lot. My debit card has become my go-to card for all purchases. I’m too lazy to grab cash from an ATM, and I stopped using my credit cards frequently because I was spending too much. For the past few months, I’ve used my debit card pretty much exclusively to help reign in spending and keep my budget on-track.
After googling debit cards, however, I’m slightly terrified. I never really thought there was much of a difference between using credit and debit. After digging a little deeper, I’ve realized that debit can be downright dangerous. By educating yourself, you can take steps to prevent fraud, overdrafts, and other problems that can affect your bank account. Here are some of the dangers associated with debit cards, and what you can do to avoid them.
The Dangers of Your Debit Card
Loss Limits – The good news: federal law limits your liability for fraudulent transactions on a debit card to $50. In other words, if your card is stolen, the most you’ll have to pay for any phony charges is fifty bucks. The bad news: this rule only holds if you notify your bank within two days of discovering the theft. If you check your bank account regularly, this won’t affect you much. But if you don’t keep a close eye on your bank statement, this could really get you into trouble.
Immediate Loss – If you’re experiencing fraud related to your debit card, that money is going to come out of your account in real time. And if that’s your primary bank account, you’re going to be in big trouble. On the other hand, when fraud is committed with a credit card, you can stop the payment immediately, so you won’t be left in the red.
Merchant Disputes – Imagine this: you’ve made some purchases online, but the product never arrives. What steps can you take as a consumer? Well, if you paid with a credit card, you’ll have a much easier time recouping your losses, since you can stop payment. When you pay online with your debit card, that money comes directly out of your account at the time of purchase, and there’s not much you can do about it.
Phantom Charges – You might have heard about this problem before, but here’s the lowdown. When you check into a hotel, the hotel typically takes an imprint of your credit card. This is how the hotel protects itself against non-payment by customers who use the mini bar, damage the room, or incur other charges. Your credit card is not charged until you check out. When you pay with a debit card, some hotels will overcharge you for the room at the outset, freezing a certain amount of funds on your card, so that if you acquire any charges during your stay, they will be able to hold you accountable. These are not real charges because they don’t last, but they do make some of your funds untouchable for a few days. These “phantom charges” may cause you to overdraw your account, or be left with no money to spend, which can be a real problem when traveling. Gas stations, as well as rental car companies, withdraw phantom funds as well.
Overdraft Charges – A common misconception is that if you run out of funds, the bank won’t let the transaction go through, and your card will get rejected. This is not always the case! A debit card usually won’t get rejected like a credit card will. Say you have $5 in your account, and you’re buying a $10 meal. You could end up getting charged $40 for that meal, when you get slammed by overdraft fees.
Avoiding Debit Card Dangers
As you can see, debit cards can be a risky form of payment. They’re not all bad, though. People use debit cards because they’re convenient, and they make it easier to track spending. Most merchants will accept debit cards, and they can make transactions quite speedy. I personally use my debit card because it keeps me on a budget, and I don’t have to worry about paying a bill at the end of the month, or acquiring hefty interest charges. That being said, you can greatly decrease your chance of problems by being selective about when and where you use your card.
To avoid phantom charges, never use your debit card to check into a hotel room. Always use credit to book a room, especially if you’re booking in advance, since funds will be withdrawn at the time of the booking. The same holds true for rental cars and gas stations. Always use your credit card, or better yet, cash. It might be a little bit of a pain to go in the gas station to pay the attendant every time, but it’ll hurt more when you’re zapped with overdraft fees because of frozen funds.
Personally, the biggest change I’ll need to make is to stop using my debit card for online shopping. I typically use my card to shop online out of pure laziness. You should be especially diligent when shopping at online stores like Ebay or Etsy, where individual merchants are in charge of shipping products. However, even if it’s a reputable online retailer, you should take care to pay with credit, or even PayPal.
I would also advise you to pay with credit or cash at restaurants. Any time your card leaves your sight, you’re opening yourself up to the possibility of fraud. Since debit card losses are harder to recoup, be safe and pay with credit or cash. Another concern is that some restaurants will overcharge in anticipation of a tip – resulting in phantom charges, much like at a hotel.
Where else should you avoid giving your debit number? If you have the option, it’s better to set up recurring payments with a credit card number. Why? As an example, think about paying for your gym membership. What happens when you cancel your membership, but they mistakenly continue to withdraw monthly fees? Since it’s easier to dispute charges with a credit card, your best bet is to use credit for monthly bills.
Stay aware and protect yourself from skimming. Skimming is the theft of your credit and debit information using electronic devices. Criminals use skimming devices to steal your information when you are at an ATM or checkout counter. If something doesn’t look quite right, or the machine appears to be tampered with, run the other way. Routinely use credit or cash to protect yourself from fraud. Obviously you will still have to use your debit card to withdraw money from your bank account, but you can avoid skimming by exclusively using ATMs that are on bank property. Don’t withdraw cash from ATMs in convenience stores or malls, for example, which are easier for criminals to interfere with.
The Bottom Line
Protect yourself. Think before you use your debit card. The best way to avoid fraud is to use cash. Don’t use your debit card at hotels, gas stations, or rental places. Avoid pulling out the plastic in places such as restaurants where it leaves your sight. Most of all, don’t use your debit card in any situation where payment is taken before delivery of goods, or where you may possibly have to dispute a payment. If you follow these tips, you can minimize your risk, and have some peace of mind when it comes to protecting your finances.