This holiday season, about one-third of shoppers are expected to use a debit card for purchases rather than a credit card in an effort to keep spending in check.
It would mark the second year in a row that debit cards have significantly pulled ahead of credit cards as the payment of preference around the holidays, according to a recent survey by the National Retail Federation. The use of credit cards - the choice of about 28 percent of shoppers - has been dropping and this year is expected to fall behind cash.
Credit counselors often advise budget-conscious consumers to use a debit card to control spending. With a credit card, consumers can spend money they don't have. Debit-card purchases usually come straight out of the customer's checking account, so a spending spree is limited by how much is in the account.
"Another positive: You don't have to pay interest on the purchase that you make with a debit," said Ray Hooper, education and housing director for the Consumer Credit Counseling Service of Greater Dallas.
But some consumer advocates and identity theft specialists are wary of debit cards because they don't carry the same legal protections that credit cards do.
If you can resist overspending with plastic, "your credit card is a much safer way to do business," said Ed Mierzwinski, of U.S. Public Interest Research Group, a consumer advocate. "If you are not confident that you can avoid racking up credit-card interest and debt, then you should go into a debit card with your eyes open that your rights are not the same by law."
Essentially, with a credit card the most you would have to pay if a thief used your card is $50. Card companies typically waive that sum, too. Debit cards come under a different law called the Electronic Fund Transfer Act. With a debit card, your liability depends upon the speed at which you report an unauthorized purchase.
For example, you won't have to pay more than $50 if you alert the financial institution within two business days of discovering the loss or theft of your debit card. Wait longer than two days and you can lose up to $500.
Fail to report a problem within 60 days after your statement is mailed, and you can be liable for fraudulent purchases made with your card after the 60 days, according to the Federal Reserve. So, you can lose all the cash in your account and the amount of any overdraft line of credit.
