The great credit vs. debit debate

December 7, 2009 4:02:53 PM PST
Before you go holiday shopping, keep in mind that 12 million people still have purchases on their credit cards from last year. But don't think paying as you go with your debit card is necessarily the answer. There can be serious drawbacks to using your debit card for holiday purchases.

More and more people say they are using their debit cards to avoid running up credit card debt.

"I can control my money that way," said debit card user Chris McIntyre. "I know what I can spend and what I can't spend."

While this is a plus with debit cards, Consumer Reports money adviser Mandy Walker says it can be a mistake to use debit cards for big holiday purchases or even small ones you might want to return.

"With a debit card, if you have a problem with the purchase, you can't dispute the charge the way you can with a credit card."

And for big-ticket items like electronics, debit cards rarely give you a longer warranty, something you get automatically with many credit cards.

Consumer Reports also advises against shopping online with a debit card. If your security is compromised, thieves can drain your entire bank account.

"And if you don't report fraudulent activity on your debit card within two business days, you can be on the hook for $500 or more," she said. "With a credit card, your losses are limited to $50."

Another big minus with debit cards, if you spend more than you have in your account, you'll likely be socked with hefty overdraft fees.

If you don't have a credit or debit card, you may be tempted to use prepaid gift cards, but Consumer Reports says these can be a bad deal.

"There may be a fee to activate it and a fee every time you use it," said Walker. "There may even be a fee when you don't use the card."

So this holiday season, using a credit card is a smart money move, but only if you keep your balance under control and pay it off promptly.

Consumer Reports says for small purchases that you're not likely to return, using a debit card is fine. But if you're concerned about identity theft, press the credit option when using your card, not the debit option. That way, you don't have to punch in your pin, which identity thieves target in order to steal money from your bank accounts.


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