Why Debit Cards Scare Me
I’ll be honest, debit cards scare me. I know that I am probably in the minority on this; if my close friends are any indication, debit cards are quickly replacing cash as the average student’s primary means of payment, and are perceived as responsible, safe, and easy to use. But while there are certainly benefits to debit cards, compared to credit cards, there are risks, too. What scares me?
Bankrupt Airlines
I cringed the other day when a friend bought an airline ticket home using his Visa Debit Card. Within the last month, Aloha Airlines, ATA Airlines, and Skybus have all completely ceased operations. For customers with tickets on those airlines, the airlines themselves gave no refund option — the only advice was that if you purchased using a credit card, you could contact your credit card company for a full refund. Otherwise, out of luck.
If you have the choice, you should always purchase travel arrangements using a credit card. Over at Money Blue Book, Raymond wrote an excellent post recently covering this very topic, “Always Pay By Credit Card to Protect Against Airline Bankruptcy Loss,” which does a very detailed job of explaining how credit cards offer federally-mandated protections that you just don’t get with debit cards. With a credit card, under the Fair Credit Billing Act, you can dispute charges within sixty days for services that were not delivered as agreed to, and get a full refund. With debit cards, you simply don’t have the same protections; some banks may offer more limited debit protections, but these policies are not standardized and are on much more uncertain territory.
These protections, of course, do not just apply to airlines, but also to any transactions where the goods or services weren’t delivered as agreed.
The Blank Check
The other major factor that scares me with debit cards is how they are directly tied to your checking account. Now, many people consider this to be a major positive over credit cards — with debit cards, you pay immediately out of money you currently have. However, consider the danger if you lose the card: the thief has the ability to drain all of the money in your checking account. For me, that is a scary proposition.
Most banks these days try to reassure you with zero liability protections. Bank of America says that it guarantees “reimbursement for fraudulent transactions when reported within 60 days from statement date.” Chase has a similar claim, promising that “your account will be credited by the end of the next business day as we resolve the unauthorized transaction dispute.” What is the problem, then?
The problem is that your money is still taken out of your account to start. Unless you are in the habit of checking your bank account every day, it may take a while to realize that someone has gotten your debit card number. During that time, your account could have been wiped out, and you might be bouncing checks to utilities, having debit card transactions declined for insufficient funds, or not have immediate access to that money in an emergency. Its true that in all likelihood the bank will get you your money back quickly, but you may still have quite a headache to deal with. This is where a credit card comes in handy; you always get to see the final bill before paying it.
Losing a Credit Card While Abroad
While I was in Germany briefly last month, I had the unfortunate experience of losing my credit card. Losing a credit card is never a fun experience, but there are certain steps you can take to quickly and safely resolve the issue:
- When traveling abroad, it is a very good idea to write down the customer service number for your credit card companies and keep it somewhere separate. Think about it: if you lose the card, you’ll no longer be able to look on the back of it for the number.
- When you lose your credit card, you should immediately contact your credit card company. Most major banks now maintain 24 hour lines, so it should not matter what time zone you are in.
- While its true that your liability is limited in the event of your card being used without your authorization, it will create far less of a headache if you get the card shutdown right away. Furthermore, your credit card company may be able to (for a fee) expedite a card to your abroad or help you immediately access money.
- Call Collect. Most banks have not only a 1-800 number, but also a direct number for use while abroad that will accept collect calls at no cost, so dial them up from a land-line phone collect and let them pay for the call (why do they do this? It is in their interest to get stolen/lost cards shut down as quickly as possible, so they want you to be able to call even if you have lost all your money).The collect call number is usually listed on the back of your card as for “Outside the U.S:”. The collect-call numbers for some banks:
- Bank of America: 1-757-677-4701 (source)
- Citibank Credit Cards: 1-605-335-2222 (source)
- Chase: 1-302-594-8200
- Don’t have your bank’s number? If you have internet access, just look it up. However, if you have your cell phone, try texting Google at 466453 — (more information on the free service can be found here). Essentially, if you text “Bank of America 12345″ to Google, it will look up in the phone listings the number for the BoA branch in zip code 12345 — calling that local branch, even at two AM local time, can get you forwarded to the general customer service number.
In the interest of full disclousure, I hadn’t completley followed my own advice — I used to keep emergency bank numbers in my phone, but had let that go — but after my experience in Germany, I’ve started following these steps again.