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Debit vs. Credit Card: Which Is Safer? (Ben Knows!) Plus:Beware Those 0% Or Fat Rebate Offers From The Automotive Industry And: Ben's 2004 "Smart Car Seminar" Guide Is Now Available (For Free, Of Course!)
January 22, 2004
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Dear Ben: One of your readers mentioned their use of debit cards recently. Is there any advantage of a debit card over a credit card? We use a "Discover" credit card, pay in full at the end of every month and never pay interest (ever!) or any other carrying charges. To top it all off, we get back about $120 at the end of the year. So I want to know: Why do some people use debit cards (which take the money out of their bank account immediately)? Why use a card that doesn’t "bonus" users with cash rebates? There must be a good reason, because so many people appear to be using them.
JWM, Denison, TX
Dear JWM: Debit cards are effective cash management tools for those of us that need stronger spending boundaries...effective "charge card" substitutes that carry Visa or MasterCard logos. Some consumers either can’t qualify for a traditional credit cards (or don’t want one that carries the temptation of debt), so they’ll get a direct-draft-from-your-checking-or-savings-account debit card instead. While debit card give users widespread merchant acceptance/convenience like "old-fashioned" Visas or MasterCards, they don’t offer other key features–most notably–the same level of fraud protection as charge/credit cards.
Even though many debit card issuers are now "protecting" debit card users from fraudulent transactions, limiting liability to $50 (like the credit card companies have been doing forever), there’s still a huge gap in the real protection afforded debit card users. Example? If your credit card gets hit with a fraudulent $1,000 transaction, a phone call to the issuing bank not only flags the problem, but is relatively easy to remedy by "charging back" the merchant that originated the transaction. But for debit card users who are victimized by the same $1,000 fraud, it’s just not as easy to fix, because the bank account has actually had $1,000 sucked out by the bad guys. Getting $1,000 "real" dollars returned versus a $1,000 credit/charge transaction "reversed" is not only more difficult, but can take much longer, sometimes the difference between one 5-minute phone call and hours of pleading and documentation brain damage that’s simply not worth it.
Oh yeah: Forget piling up any "frequent fliers miles or "cash back rebates" when it comes to debit cards, too.
Dose of Dover For The Week/Part I: General Motors made waves recently when they announced a promotion that will give away 1,000 new vehicles from now until the end of February. Consumers who visit any of the 7,000 GM dealerships–sellers of Chevrolet, Pontiac, Cadillac, Buick, Oldsmobile, Saturn, Saab or Hummer models–don’t have to do much to get their shot at winning a new set of wheels: Just sit in an "OnStar-equipped" car and push the On-Star button to find out if they’re a winner. Chances of winning a new vehicle? GM says about 1 in 5,500, and no test drive is necessary...but expect a crowd. They predict this offer will bring about 5.5 million prospective customers to showrooms, 40-50% more than usual for two traditionally slow sales months.
Dose of Dover For The Week/Part II: Whether it’s a chance for a free car, the allure of 0% financing or fat rebates, don’t get too excited about your odds of actually cashing-in on any of these come-ons. Whenever you see (usually in small print) the word "WAC," it means your chances of actually benefiting from incredible financing offers is not as high as you might think. In reality, "With Approved Credit" means that only a select group of consumers–with stellar credit histories–get to enjoy these attractive and affordable terms. And if you’re looking for insights and answers for burning, meaning-of-life questions such as "Should I buy or lease my next vehicle?," "Should I get a new or pre-owned vehicle?," "How can I get out of the "over-miles penalty" in my current lease?," "Why is the sky blue?," type questions, I’ve gotcha covered. I’ve updated the information given away at my "Smart Car Seminars" for 2004; the price is right (free, of course), so buckle-up and click away.
Dose of Dover For The Week/Part III: It’s a good idea to check out your credit reports before you starting kicking tires. Erroneous/outdated information will cost you more, so get smart(er) first.
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