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The down side of debit

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TESS VIGELAND: Well we just heard all about Lisa Napoli’s ordeal with credit cards
You might be thinking to yourself, I’ll just avoid those hassles by swiping something else: a debit card. No interest to worry about, no solicitations in the mail. What’s the worst that can happen from using them? You don’t track your spending and run out of money. But that’s not all.

Jilian Mincer is with Dow Jones newswires. Jilian, what’s the biggest risk you’re taking by using debit instead of credit?

JILIAN MINCER: They don’t offer the same protections that you get when you use a credit card. And a lot varies depending on what kind of card you have, what bank you get it through. And also how you use it.

VIGELAND: Yeah, you know I’ve heard that when you use it at, say, one of those terminals where you swipe your card and it asks you debit or credit, that you should actually type in “credit,” even if you’re using your debit card.

MINCER: Exactly. One of the biggest problems is people assume, because it looks like a credit card, that it offers the same protections. And as we know, the federal laws say that on a credit card, you are protected if someone else uses your card illegally. You’re responsible for only $50 in purchases. Whereas with debit cards, those responsibilities get higher if the card is used fraudulently.

VIGELAND: You also mention in the story that, for example if you’re using your card to make a hotel reservation or a car reservation, that that money actually comes right out of your account to hold the reservation. And that’s not something that maybe you want to do with your debit card.

MINCER: That is one of the problems with a debit card. If you have a reservation and you use your debit card and perhaps you’re expecting to stay at this hotel at $100 a day for seven days, that’ll be $700 — it’ll block out that $700. And while you might have $700 in your account when you actually go to that hotel, it could possibly make you bounce a check if you don’t have the money in the account when you make the reservation. While you might get your money back, it could take several days, and during that time you could be bouncing checks, or you might not have access to any cash.

VIGELAND: Well frankly, I use my debit card all the time, but I’m wondering now if I want to do that. What can I do to make sure this doesn’t happen to me?

MINCER: A lot of people like using a debit card because it does keep track of your expenses. Instead of, you know, getting money out of the ATM machine and not having any at the end of the week or mid-week, you know exactly where you spent it. That said, one of the best things to do is find out what safety mechanism are in place that your bank provides. What exactly are you going to be responsible, because different banks offer different things. And then when you’re using your debit card, always keep your receipts, always review your statements and check your balances regularly. A lot of banks will set it up so that you could get text messaging or e-mail message if your account goes below a certain amount and that’s a good warning sign. Also, believe it or not, a lot of people carry around their PIN number, which is a very dangerous thing to do.

VIGELAND: You mean like written out?

MINCER: Yes.

VIGELAND: In their wallet?

MINCER: In their wallet. It’s very common.

VIGELAND: OK. People, don’t do that.

MINCER: Definitely don’t do that. Because if someone gets your wallet and they have their PIN number, it’s gone.

VIGELAND: Jilian Mincer is a personal finance columnist for Dow Jones newswires. Thanks so much for coming in.

MINCER: Thanks for having me.

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