When Not to Use a Debit Card

Debit cards are so easy to use and it's just like paying with cash...right?

Not always.

While you don't pay interest charges with debit cards, as you do with credit cards, there are other hidden costs associated with their use. Here are some dos and don'ts you'll need to know when using your debit card for holiday shopping.

1. DO watch how much you spend. Overdraft charges are a major liability if you don't watch your account balance. New laws restrict such fees on credit cards but don't apply to debit cards. With such fees skyrocketing of late to $35 per overdraft, you can find yourself in a very big hole very fast. Watch out for banks that automatically enroll you in overdraft protection programs, as well. These often carry an annualized interest rate that exceeds 3,500 percent. Don't forget to figure in automatic withdrawals to pay monthly bills when calculating you're balance.
2. DON'T use debit cards for large purchases. Debit cards don't offer the same protection as you receive with credit cards. Nor do they allow you to dispute or reverse charges. Some credit cards even offer an automatic extension of warranties.
3. DON'T use a debit card online. If you lose your credit card or have your identity stolen, the users liability for unapproved charges tops out at $50, while the cap for debit cards can run as high as $500 if you don't report the loss within 60 days. If you haven't reported the loss within 60 days, you may be responsible for all charges made until the report is filed.
4. DO click on "credit" and sign for payments, instead of using your PIN. Some cards provide the same zero-liability protection to debit cards, if they're processed as credit cards. PIN transactions may not have that protection.
5. DON'T link your debit card to an account with a large balance. Thieves and con artists can drain your debit-card-linked checking account fast as a whistle. Keep only enough in your account to cover purchases and remember to watch that balance as you spend.
6. DO use your credit card if you have no debt burden, always pay off your monthly balance and are saving up frequent-flier miles or to receive a cash rebate. The holidays traditionally are when you'll use your credit card the most, so take advantage of this larger balance to rack-up the benefits.

Photo by ame nielsen