The pros and cons of using debit cards



Posted on August 15, 2009 at 1:33 PM

Updated Thursday, Sep 24 at 12:36 PM

Video: The pros and cons of using debit cards

SEATTLE - Debit cards now officially rule the world of plastic. For the first time ever, Visa says more money is spent on its debit cards than its credit cards.

Some industry analysts say the rise of debit card use is an indicator that consumers are being more responsible with their spending, since debit requires immediate payment. Others say it may be an indication that consumers are fed up with high credit card interest rates. Whichever form of payment you use, there are some things to think about.

Starbucks made news last week when we learned they'd inadvertently double-charged customers who used debit or credit cards over the Memorial Day Weekend. It was a computer error that was quickly rectified.

Kristin Alexander with the Washington State Attorney General's Office says the incident is a reminder that consumers need to be watchful of their own accounts.

"That means checking our statements. That means reporting suspicious activity as soon as it occurs," said Alexander.

Certified Financial Planner Dennis Clavin only uses his debit card to get money from an ATM.

"I think it's really smart to have some petty-cash on hand," said Clavin. He uses cash for small purchases and credit cards for big purchases.

"And i love getting the mileage and we pay them off every month," Clavin said about his credit card.

Credit cards tend to offer the most protection if a purchase arrives damaged or if there is a fraudulent charge.

"Under federal law you're only liable for the first 50 bucks of damage done to your credit card," said Alexander. "There's no such law for debit cards."

Now, keep in mind many banks offer the same kinds of protections on debit cards. Many banks even offer zero liability. Still, if you paid with a debit card it can take a lot longer to rectify the situation and get your money back.

With cash, there are no strings attached. However, there are no built-in consumer protections either.

Alexander said, "I would not pay in cash for something that I wasn't walking out the door with. So if I'm ordering it and it's coming later, I'm going to use a credit card."

Even though credit cards offer the most consumer protection, you must be diligent about checking your monthly statement. In most cases, you have 60 days to report a fraudulent or erroneous charge. If you don't speak up within that time frame, you could be on the hook for that money.