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The Downside of Debit Cards


By Heidi Huiskamp, Founder and CEO of Huiskamp Collins Investments, LLC


You probably love your debit card. It’s convenient, accepted everywhere, helps keep your spending in check (you can’t spend more than is in your account), there are no annual fees, and you can get cash back. What’s not to like?  The majority of Americans agree with you. According to a study done in 2022 by the Federal Reserve Bank of San Francisco, 44 percent of consumers prefer debit cards over the 34 percent who want to stick to credit cards for their purchases. There are drawbacks to debit cards, though, and we’ll address them today.

One detriment to solely or mostly using debit cards is that they don’t help you build credit. Individual credit histories have become more and more important in the modern age. If you want to buy a home, a car or a boat, take out a college loan, or eventually get a credit card, you absolutely need a credit history that shows you can responsibly handle and pay on credit. The more positive credit history you have, the lower the loan rates you will receive, resulting in savings of real dollars over time. Did you know that insurance companies check your credit and you will be given lower insurance rates if you possess a higher credit score?  It’s true and it’s just another reason to give time and attention to building the best credit history that you can.

Another reason to use credit cards over debit cards is the process you will go through if there is ever a question on a charge. If you believe a credit card entry is incorrect or fraudulent, you simply call the financial institution and tell them you want them to dispute the charge and open an inquiry. The bank will take down all the facts, credit your account, and look into the matter. Please note that I said credit your account: during the dispute process, you will have full use of your credit card and can charge up to the limit without worrying that the disputed amount is “tied up.” Not so with a debit card. If you find a debit charge on your account that you don’t think you made, you absolutely should call your bank to dispute it. But while your bank or credit union is examining all the records (which could take a while), that debit charge stays deducted off your balance until the whole process is over. Depending upon the size of the debit and the length of time it takes the process, that could cause you some real headaches.

The biggest drawback associated with debit cards, though, is their limited fraud protection. Fraud affects everyone: young and old, sophisticated, and not-so-much. Never believe that you can’t be the victim of a fraudster; they get smarter and smarter every day and even if you subscribe to fraud protection services, nothing is ever 100 percent. Plus, there is always the possibility of a lost or stolen card. If you fall prey to fraud while using a credit card, as cited above, you simply call the financial institution for assistance and the entire amount in question is credited to you while the inquiry is ongoing. The same goes for a lost or stolen credit card. The bank will go over your charges with you to assure both of you which charges were, in fact, yours, and then the card will be canceled and a new one issued to you. In December of 2022, Bankrate.com reported just how different your fraud protection is with a debit card. If you need to let your bank or credit union know your card was lost or stolen, you have up to 48 hours to report the matter. You’ll still be on the hook for $50.00 if there were any charges made while out of your hands. If you make the report after 48 hours but before 60 days, you’re liable for charges up to $500.00. And if you have the bad luck of not realizing your card was lost or stolen after the 60-day limit, your liability is actually unlimited. Talk about adding insult to injury!

Now please don’t misunderstand. Showing good financial sense can mean responsible use of both debit and credit cards. Absolutely use your debit card at the ATM for quick cash. Paying for your double mocha macchiato with your debit card, too, is probably okay. But your big-screen TV?  Or your new smartphone?  Better put those on your credit card for protection. And paying for fuel at the pump?  Fraudsters are still installing card readers at convenience stores. Either walking inside and giving the clerk your debit card or paying at the pump with your credit card are your best bets.


     Do you have any financial questions that have been bothering you?  I’d love to speak to you!  Please call 563-949-4705 or email me at heidi@hhcinvestments.net.


      Securities offered through J.W. Cole Financial, Inc. (JWC) Member FINRA/SIPC. Advisory services offered through J.W. Cole Advisory, Inc. (JWCA). Huiskamp Collins Investments, LLC and JWC/JWCA are non-affiliated entities.