Do You Select Credit Or Debit?

Yahoo Finance recently discussed the dangers of using a debit card, pointing out that the best alternative may be to select credit if given the option.

Here are some of the reasons that they listed:

  1. Loss limits – Credit cards and debit cards both limit you to $50 of personal obligation in fradulent situations, but you have a much shorter window (2 days) to report this with debit or you’ll start to be on the hook for more.
  2. Pay now / reimburse later – Because debit takes the money from your account immediately, it won’t be there during the time that your fraud claim is being investigated, which could lead to big issues for people who don’t have a cushion or get their accounts cleaned out.
  3. Merchant disputes – Same goes here, you already paid for the item that you are now having a problem with.  With credit, you aren’t on the hook for the money during the dispute process, whereas the merchant has your money during the dispute timeframe if you select debit.
  4. Phantom charges – Some places (like hotels) will put a hold on additional money at the time of purchase.  While they eventually ‘disappear’ once the transaction settles, this could lead to problems if you have a low balance and inadvertently cost you overdraft fees or bounced check fees.
  5. Overdrafts – There’s been a direct correlation to the number of overdraft transactions and the use of debit card transactions.  One, apparently, begets the other.
  6. Skimming-  If someone gets a hold of your account number, your bank account can be cleaned out before you or the bank notices the activity.  The chances of this are a lot lower in credit card transactions.

We always use the ‘credit’ option when we use our debit card.  I’ve noticed that more and more merchants seem to be trying to subtly lead customers to using the debit option by removing the Credit/Debit choice on the pinpad devices, and instead defaulting to the ‘Enter Your PIN’ screen which would make it a debit card purchase.

The dirty little secret here is that merchants pay less to the banks when you use the debit option versus when you select credit, so it makes sense that they want you to use debit.  However, the way I look at it, they’ve already factored the costs of the credit transactions into the cost of their goods or services, and it’s not like they’re going to pass along some of the ‘savings’ along to you that they’d see if you select debit.  It goes right in their pocket.

The bottom line is that consumers take the biggest risk when they select debit, and it’s not a risk I’m often willing to take.  About the only times I ever select debit are when I’m at Costco (they don’t accept ‘credit’) or in the rare event that I want cash back and can save a trip to the ATM, and usually I’ll kill two birds with one stone and just get the cash at Costco.

This article raised some good points, but we were already in the ‘use credit’ boat.  Do you agree or is there any reason where you prefer to use debit?

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6 thoughts on “Do You Select Credit Or Debit?

  1. Thanks for posting this. I've always wondered what the difference between the two was, and never really thought much of it. I'll definitely be selecting the credit option when available. Tricky people always looking to separate me from my money!

  2. Great article and thank you for posting. I have always been curious about the differences. The pros and cons, from now on I will be using the credit option.

  3. I think you're misreading the article a little bit. When the article talks about using "credit" it's using a credit CARD instead of a debit card. Even if you use the credit selection from your debit card, it still takes it from your checking account and if there's a dispute, you're out the money until it's resolved with the bank. Visa/Mastercard might help with Merchant disputes with the debit as credit selection. However I NEVER use my debit card for purchases, even using the "credit" option. I had a someone take that card number and use it to take 1800 from my checking account using the credit portion making a "purchase" to a jewelry store in Israel! I got my money back, but was without the funds in my checking account until then.

  4. To the last commenter, when I use my debit card and select Credit, the transaction shows as pending for at least 48 hours. That's pretty much the same time that it takes for a true 'credit card' transaction to post. If your card gets compromised, I would certainly think that as long as you catch the transactions while they are in 'pending' state, the bank cannot continue with posting the transaction (thus taking the money out of your account). If you don't check your account regularly, you could certainly be at the risk you outlined since the transaction will have time to post, but I check our accounts almost every day and would notice any improper 'pending' transactions before they were allowed to post. Only after the transaction posts does my actual balance change. I could be mistaken, but I think the bank will keep any disputed transactions in 'pending' state while they investigate, thus protecting your balance.

  5. I think it's awesome to help small business find the least expensive way to do things. I try to point people to "do-it-yourself" ways too, because small business owners take, well, ownership, of their online presence.

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