According to aBankrate survey, 40% of people carry less than $US20 of cash in their wallets.
So unless you’re buying something really small, your payment options are limited to debit or credit.
So how do you decide between the two?
We talked to certified financial planner Alan Moore, founder of Serenity Financial Consulting, to see in which instances you should put away the debit card and default to credit.
Moore’s first suggestion was to check what kind of fraud protection your bank provides for your debit card.
“By law, if a consumer’s credit card gets stolen, they are responsible for the first $US50 of stolen money, and the credit card company must cover the rest,” Moore says.
“For debit cards, consumers are responsible for the first $US500 of expenses,” he continues. “While these are the legal limits, some banks choose to provide better fraud protection coverage for debit cards. USAA, for instance, covers 100% of the stolen funds, not just money after $US500.”
Moore advises that if you’re one of the many people who would be responsible for the first $US500 should your debit card be stolen, you’ll want to use your credit card when there’s more money at stake, or your card’s information might be less secure.
These are the cases when it’s safer and smarter to steer clear of your debit card in favour of credit:
Moore says that when buying online from major vendors such as Amazon, using a debit card shouldn’t present any problems. However, if you’re buying from a smaller or less-established company, Moore advises sticking to a credit card, since you just never know what those companies are doing with your card data.
“It is impossible to know if the vendor is protecting your data as well as they should,” he says, “so erring on the side of caution is good.”
Travelling isn’t cheap and it’s something that is often booked way in advance. There’s no guarantee that something won’t come up before a big trip that would cause you to cancel it. For this reason, Moore suggests using credit cards with built in travel protection.
“This can provide a safety net for if your trip gets canceled to due to illness or weather,” Moore explains. “Be sure to book hotels, rental cars, and flights on your credit card. Debit cards rarely have built in travel protections.”
You’re at a flea market and you find an antique that would be perfect for your home, but the vendor wants to write down your debit card information. Moore says switch to a credit card. In fact, he has first-hand experience with this, since his debit card number was once stolen after a vendor recorded it.
Not all small vendors call for cash or a credit card, though. “As long as the vendor is using a reputable processor like Square or QuickBooks, then I wouldn’t be worried [about a debit card],” Moore says.
Moore sees only one problem with people using debit to pay for gas: If you’re the kind of person to carry a relatively low balance in the account linked to your debit card, you may want to use credit.
“The one argument that I’ve heard on why you shouldn’t use a debit card at a gas station is because gas stations put holds on funds in your account to be sure you have enough to cover the purchase, and that can cause other checks/purchases to bounce,” Moore explains.