In the world of personal finances, there are some unwritten rules. Although everyone tells us that credit cards are the devil’s work, there are times when they are preferable to debit cards. Although debit cards give us a sense of immediate control over our spending—after all, we can’t be charged interest on them—they also expose us to unnecessary risks.
Believe it or not, there are three types of transactions and places where debit cards are a dangerous option. In fact, financial security experts advise against using them directly in these situations.
Your money vs. “borrowed money”
If you’re not sure about the difference between a credit card and a debit card, here’s the difference. We need to consider the difference between money that is yours and money borrowed from the bank. While a debit card withdraws funds directly from your checking account, a credit card is a loan from the bank.
If fraud occurs, your cash disappears instantly. That means you’ll be unable to pay your rent or other essential services while the bank investigates the alleged fraud, which can take days or even weeks. In contrast, a credit card that uses the bank’s line of credit directly affects the bank, not your personal assets. The policies of major card issuers often offer zero liability to the customer in the event of fraud. This means that if you see a charge you don’t recognize, you won’t have to pay for it.
The second major problem is the risk of hold or pre-authorization: many businesses need to ensure that you have sufficient funds to cover the purchase, which means holding $175 to $150 before the final charge is completed. If you make this transaction with a debit card, that hold freezes your real-time funds for several days. With a credit card, on the other hand, the hold only reduces your available credit limit…but your cash remains intact.
Now that we’ve explained the basics, let’s move on to the three most dangerous places where we advise you never to use a debit card.
Gas stations
Unfortunately, gas stations with outdoor pumps are a favorite target for criminals. Because they are exposed, data theft devices—commonly called skimmers—are very easy to install without anyone noticing. Once they have stolen the data from your card’s magnetic strip and PIN, they can easily access your bank account. If you use a debit card to fill up your car, you are handing over the keys to your checking account to potential fraudsters.
On top of that, there’s still the issue of temporary holds (between $75 and $150).
Even if you’ve only filled up with $20 worth of gas, that $150 can be locked up in your account until the final charge is processed—which can happen hours or even days later.
Hotels and Car Rental
Although there is less risk of fraud here, tying up large sums of money is the worst part. Both hotels and car rental agencies require a substantial security deposit.
After all, they have to make sure you’re not an incognito rock star who’s going to trash the room you’re staying in, so they have to cover their backs somehow. If for whatever reason you don’t have a credit card and use a debit card, the amount—which can be up to $1000—is immediately deducted from your balance. That money is left in financial limbo, and you can’t use it. You probably won’t see it until a week or more after it’s been released in full and you’ve left the hotel or returned the vehicle.
Online shopping
Online shopping, even when you think you’re buying from Amazon, can expose your information to virtual store databases. If that store suffers a security breach, your payment details are exposed. Just like at the gas station, if you use a debit card, the risk is directly linked to your checking account.
It’s the same in places like bars and restaurants: when you give your card to the waiter, if it is taken out of your sight, they can make a duplicate or skim it. That’s why you should always use a credit card… And periodically check all the payments that have been made with it. If you see something that doesn’t add up, it will be much less of a problem, as the bank will take care of it.