In the heat of holiday shopping, here are five situations when you should always use a credit – instead of a debit – card:
Online purchases. Debit cards offer similar protections as credit cards. Under the Federal Reserve’s Regulation E, the maximum liability for debit card fraud is $50, just as it is with credit cards. However, dealing with fraudulent debit card purchases is not as simple as dealing with online credit card fraud. If a debit card number is compromised, it can leave a cardholder with no available cash while the issue is being worked out by the bank. If the same problem happens with credit card purchases, a new credit card can usually be mailed to cardholders overnight. Also the time frame of its absence is a factor for debit cards. The longer it’s missing before you report it, the greater your liability, whereas credit cards are usually liability free regardless.
Gas. Purchasing gas with a debit card can lead to a short-term monetary hold of $50 to $100 that can last a few hours (or possibly overnight). This hold can cause issues for consumers with very low balances, especially if it leads to overdrafts from outstanding checks, or prevents additional debit card purchases until the hold is released.
Hotels. Hotels also place monetary holds on debit cards. At a hotel, a hold of $100 to $200 is typically applied, often in addition to the hotel cost. Once again, this can cause issues for those who carry low balances, which is why charging this purchase on a credit card is recommended.
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Large purchases. Unlike with a credit card, consumers typically are unable to stop payment on a defective item purchased with a debit card. So a person who spends $1,500 on a defective television with a debit card will be forced to wait until he can resolve the matter with the merchant before getting his money returned or be issued a replacement television or be stuck with the defective item. With a credit card, the same consumer can get the situation remedied almost immediately without losing access to the $1,500 spent on the TV or running the risk of being stuck with a bogus item. Additionally, American Express, Visa Signature and World MasterCard credit cards all offer various forms of purchase protection that insure cardholders against these type of issues to begin with.
Dubious places. Since dealing with fraudulent credit card purchases is significantly easier than dealing with debit card fraud, you should never use a debit card at any establishment that appears questionable. For example, if you think the ATM card insert area looks strange, use cash or a credit card instead.