Why Using Debit Cards Can Be Dangerous

3. What kind of protection do you have if your debit card is lost or stolen? Debit cards do not afford the same piece of mind when it comes to financial security as credit cards. The major difference concerns the federal regulations regarding your fraud liability. For credit card users, there is usually a $50 liability cap, meaning you are responsible for the first $50 in damages. For example, MasterCard limits a customer's liability for losses incurred from a lost or stolen MasterMoney card to $50. However, the liability could be as high as $500 on some bank debit cards and could often include a lengthy and cumbersome back and forth between you and the bank. In addition, unlike a credit card, if you are dissatisfied with the purchase, you are not able to withhold payment until further investigation by the credit card company. Simply stated: There is no Fair Credit Billing Act for debit cardholders. Instead, you are on your own to resolve a dispute with a vendor when you debit your purchase.

Mellody's Tip: When it comes to making major purchases or shopping online, use your credit card instead of a debit card. Also, time is essential when it comes to reporting a lost or stolen card, so call your bank immediately. Visa debit card customers pay nothing if the card is reported missing within two business days.

4. Will using a debit card prevent you from over drafting on your account? No, some debit cards actually allow users to overdraw, or spend more than they have in their checking accounts. If you use a deferred debit card and simply sign for your purchases, many banks will let you exceed the checking account balance and possibly hit you with an overdraft fee. This fee is usually around $30.

Mellody's Tip: Balance your debit card as you would your checkbook. It is very important to maintain the receipts from all of your purchases to ensure no additional money is being erroneously debited from your account. 5. Does your employer offer a payroll card? In addition to traditional uses, debit cards are being put to work in even more creative ways such as payroll processing.

Launched in the late 1990s, the payroll card allows employers to debit an employee's paycheck to a special account providing the employee with immediate access to his or her money, which can be withdrawn at ATMs or used for purchases like any other debit card. Although these cards do not offer check-writing abilities, they are especially beneficial to the 14 million households without bank accounts and are growing more and more popular. In fact, the number of payroll cards has doubled in the past year to 2.2 million, according to market research firm Financial Insights, with well-known companies such as Sears, UPS, U-Haul, Coca-Cola and Dominos using them.

For employers, these cards offer significant savings. The cost of issuing a paper check ranges from $1 to $2, while the cost of an electronic transaction through direct deposit or a payroll card is only about 20 cents.

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