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Debit Fraud Can Cost You – How to Answer the ‘Debit or Credit?’ Dilemma

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By Vicki Lee Parker

RISMEDIA, August 12, 2008-(MCT)-Will that be credit or debit? It’s a simple question. But there are many things to consider beyond whether it’s quicker to punch in your PIN number or sign the receipt.With many reports showing that debit cards are gaining popularity over credit cards, it’s important to know which card to choose and why.

Here are some things to consider:

- Risk. The increased use in debit cards increases the possibility of exposing your bank account to identity theft. There’s a similar threat with credit cards, but there is a significant difference in how the two cases are resolved, said Curtis Arnold, director of CardRatings.com.

If someone steals your credit card and runs it up to the limit, resolving the matter may require some phones calls and a written complaint. In the meantime, you can use another credit card or a debit card to cover expenses.

“However, when a checking account has been compromised, you have a real ripple affect,” Arnold said. If someone cleans out your bank account, you have to worry about outstanding checks, automatic drafts, insufficient funds fees, closing the bank account, setting up new bill payment drafts and other things. “Eventually it will be taken care of. But it gets to be a real headache,” he said.

If you use a debit card every day, check your bank balance regularly.

- Protection. Credit cards typically provide greater protection against fraudulent charges or in disputes with merchants. “With credit cards, you got this float time,” said Bill Hardekopf, CEO of LowCards.com. “You haven’t paid for anything if all of a sudden you don’t get the item delivered to you or it turns out not to work.”

If the charge is fraudulent, under federal law, you are liable for no more than $50 with a credit card. With a debit card, you are liable for a maximum of $50 if you report it in two days. After two days, liability jumps to $500. Wait 60 days and you can be stuck with the entire amount.

In some cases, Hardekopf said you’ll have to prove to the bank that the charges were fraudulent. That means time and hassles before you get the money back into your account. Credit card companies will credit your account while they investigate the charge.

Signing your debit card receipt rather than using a PIN-that is, treating it as a credit card-can sometimes offer more protection. To be sure, call your bank and ask.

- Costs. Many people like to swipe their debit card for small purchases, but those little amounts can add up by the end of the month. If you’re not careful, you will overdraw your account and incur hefty fees.

Also, if you have a checking account that earns interest, you’d be better off charging items and keeping your account balance high. But that’s only if you pay off your entire balance each month. If you don’t, then don’t charge that $10 lunch, Hardekopf said. If you’re charged 15% interest and take a year to pay off your bill, that lunch could cost $11.50.

- Rewards. Using a debit card could cause you to miss out on reward points that credit cards offer. Some debit cards offer reward programs if you sign for your purchases. They do so in part because merchants are charged higher transaction fees for credit purchases, Arnold said.

But debit rewards often pale in comparison to credit cards, he said.

“Credit cards usually give 1 point for every dollar spent, but debit cards may give 1 point for every two dollars,” Arnold said.

Vicki Lee Parker is a business reporter and financial columnist for The News & Observer in Raleigh, N.C.

© 2008, The News & Observer (Raleigh, N.C.).
Distributed by McClatchy-Tribune Information Services.

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