You're at the checkout counter ready to pay and you open your wallet. You have a credit card and a debit card. Which one do you use?
There are pros and cons to both, but Alex Matjanec, CEO of MyBankTracker, has compiled six truths he says surround the debate consumers have with themselves every day.
The first truth, he says, is that protection against theft will vary, depending on the card you select. With credit cards, you are liable for only up to $50 of fraudulent use. But in the case of a lost or stolen debit card, financial loss is limited to $50 only if you report the theft of your card or PIN code within two days upon learning of it.
Credit cards may have another advantage. Matjanec says a credit card will put you in a better position when dealing with merchant disputes.
“With a debit card, the amount would already have been debited from your account and you would have to wait for a settlement of the matter before any action to return those funds could be made,” Matjanec told ConsumerAffairs. “With a credit card, the bank or card issuer is charged for that purchase, not you.”
A third truth, says Matjanec, is that some retailers or service companies may put a hold on your debit account. It's also called “blocking” your card.
For example, suppose you use your debit card when you check into a $100-a-night hotel for five nights. According to the Federal Trade Commission (FTC), the hotel will put a hold on a least $500 and may add charges for "incidentals" — like food or beverages — to the blocked amount.
This can also happen when you purchase gasoline with a debit card. The station may place an additional $50 charge on your account, that goes away in a couple of days when the gas purchase goes through. If your balance is low, the FTC suggests asking a merchant if it places a hold on your account. Otherwise, your could lose access to your account for a couple of days.
The fourth truth about cards is that the rewards are better with credit cards. Some bank accounts may offer perks if you use your debit card a certain number of times each month, but that's about the extent of the extras.
“Some debit cards have also taken to offering rewards programs in the last few years, but credit card rewards tend to be more attractive,” Matjanec said.
The fifth truth is that debit cards don't really do much to help enhance your credit standing. Yes, it's a plastic card but you are using your own money. As such, debit card transactions don't get reported to credit agencies.
The sixth truth of plastic, says Matjanec, is debit cards don’t come with the added benefits that credit cards have. Credit card issuers provide more travel insurance and extended warranty on purchased items, such as replacements or refunds on defective online-ordered goods.
From Matjanec's perspective, the advantage is clearly with the credit card. That said, consumers using credit cards to pay for everyday expenses must keep track of what they are putting on those cards. Unlike debit cards, credit cards can accumulate a balance if you don't pay the bill in full each month.