I’ve found recently, a lot of people, even those who are (or feel they are) identity theft conscious have no idea which instrument to use when it comes to ordering online.
Credit cards are just that, a line of credit that is processed through a credit card clearing house which after a few days will loan the merchant the money that was applied to a sale, while it makes the request to your lending bank to be reimbursed. Eventually you get the bill and pay that obligation. There are charges and percentages between you and the merchant but that’s for another conversation. Typically, the credit card company limits your liability of the sale to a maximum of $50. So if something goes terribly wrong, you are only liable for the first $50 and their fraud department goes after the perpetrator.
Debit cards on the other hand are what they say they are in financial terms. They apply a debit (withdrawl) from your bank account (in some cases immediately) and if a less than savory individual wants to empty your bank account they can and YOU are responsible. Which means you lose, unless the bank’s fraud department can recover your money, which most times is already spent by the perpetrator. Some banks offer insurance you can purchase to cover losses but in most cases that is rare.
Here’s a little story about a friend of mine who recently went to Las Vegas for a get-together where friends renewed their wedding vows. One week on vacation, little if any gambling, but a lot of site seeing.
One night he took is family out to a major chain seafood restaurant where they had a decent meal then after dinner he paid with his credit card. The next day, he realizes he didn’t get his credit card back at the restaurant. So he called the card company and told them the last place he used it was at the restaurant and they proceeded to tell him the card was used to pay some utility bills, and a quick trip to the local consumer electronics store. The additional totals were close to $600. The card company quickly went to work and had the individual (a waiter) arrested. My friend was only out $50. Had he used his debit card he would be out the total amount less what they (the police) could recover from the individual.
Here are some very simple rules of thumb.
Rule 1: Only use your debit card for transactions you trust implicitly. Chances are unlikely, your utility company or grocery store are going to compromise your debit card information. Restaurants aren’t very safe, as you don’t know if your card will be compromised when the waiter (making minimum wage and depending on tips) takes your card to the back for processing. Unless you have some form of insurance they can quickly empty your bank account.
Rule 2: Use your credit card for purchases you make online or for first time purchases to places you have just started to deal with. Say you’re on vacation, always use a credit card not your debit card. Dealing with individuals in other states or countries add another level of complexity, and with a credit card you are only responsible for the first $50. Credit card companies have massive anti-fraud departments and will be relentless. Always check your statements.
Hope this helps someone understand the best use of these financial instruments when making purchases.
Best of Luck
