How they work: ‘How Debit Cards Work (Cont’d)’

As we had seen earlier, Credit card limits are often quite high, sometimes significantly higher than the average monthly balance in your checking account.

As we had seen earlier, Credit card limits are often quite high, sometimes significantly higher than the average monthly balance in your checking account.

If you aren't careful, your credit card balance can grow out of control. The limit on your debit card, on the other hand, is whatever you have in your checking account.  Another advantage of the debit card is how easy it is to acquire one. You can get a debit card with pretty much any checking account, whereas you can obtain a credit card only by applying for one.

One advantage of credit cards over debit cards is that they can help you to make very large purchases that would be otherwise impossible, such as that plasma TV you've been eyeing. But it is easy with credit cards to feel like you can buy whatever you want, whenever you want. Live and spend within your means. A disadvantage of debit cards is the amount of buying protection provided to you by law. Debit card transactions very much resemble cash transactions. The money changes hands quickly, and its
difficult to get it back. If you want to return a broken or unsatisfactory item you purchased with a debit card, many businesses will only give you an exchange or store credit. 

There are several things to consider when choosing whether to use a debit card. Debit cards are best for small, run-of-the-mill purchases -- the box of doughnuts for the boys at work or the bottle of water from the corner store as you walk to the beach on a hot day. When you get into large items like computers, TVs and furniture, it's usually better to use a credit card. These purchases can put a big dent in your finances -- a dent you might not be able to afford in one big hit. Spread over several months of credit card payments, the cost of a large item becomes more manageable. Debit cards are convenient for both the customer and the merchant. Cheques can be annoying to write, cumbersome to deposit and slow to clear. Debit card transactions usually clear within 24 hours. Plus, business establishments accept debit cards more often than they accept cheques and businesses generally pay less to process debit card payments than they do to process credit card payments.

Something to keep in mind when using a debit card is that some businesses, such as hotels and petrol stations, put a hold on your card to ensure that they are paid for their product or service. For example,  the stations will often put say a $50 hold on your card and then charge you for the actual cost of the fuel you pumped. As soon as they receive the money due them, they will lift the $50 hold. If you use a debit card on fuel purchases, this $50 hold could influence the available balance in your checking account, affecting other purchases you might make before the hold is lifted.

If you choose to use a debit card, make sure you protect your card and account information. Keep your PIN safe; don't carry it around on a slip of paper tucked into your wallet. Memorize it. Also, don't make your PIN something obvious, a number that a thief could easily connect to other identifying information, such as your street number or a sequence of digits from your phone number. Pretty much anyone can get this identifying information, so don't make it easy for a thief.

As we discussed   previously, if your debit card is stolen, you may find it more difficult to get your money back than you would if your credit card were stolen. Under the Electronic Fund Transfer Act, as long as you report your card stolen within two days, you won't lose more than $50 of the money a thief draws from your account. If you don't report for up to 60 days, you could be liable for as much as $500. Beyond 60 days well, let's hope you have a good supply of money in another account. Luckily, Visa and MasterCard, as well as many banks, will not hold you liable for debit transactions you did not authorize.


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