They look like credit cards, taste like credit cards, but all cards that
say Visa and Mastercard aren't always "credit" cards. Debit cards and secured
credit cards look just like conventional credit cards, but they work very
differently.
Debit cards withdraw money directly from your checking account. When you
use a debit card, you are paying with cash. Using a debit card can keep you
within your means, provided you don't accidentally spend your rent on dog
toys and frothy beverages.
But be aware that debit cards don't always offer the same conveniences, services,
and protections as conventional credit cards. For instance, there is no grace
period -- or float -- from the time you put something on plastic to the time
you actually pay for it. And depending on your bank's policies, you may be
charged a fee every time you use your debit card.
Many debit cards limit the amount you may purchase on the card to $1,000
per day, even if you have a checking account flush with cash. So a $1,500
Donna Karan frock will require one debit-card transaction and either a check
(if the store accepts it) or a trip to the ATM. And if you don't have sufficient
funds for the DK duds? You'll be liable for the transaction and be slapped
with some pretty vicious overdraft fees.
Debit cards also may not offer the same rights consumers have with credit
cards regarding purchase problems. Say the Chia Pet Menagerie you purchase
during a late-night TV shopping spree turns out to be a single Chia guinea
pig with seeds that never bloom. If you paid for it with a debit card, you
may have no way to stop payment to Chias R Us.
Let's say a stranger in dark glasses takes down your debit card number as
you're phoning Chias R Us. You may be stuck with unlimited liabilities for
losses, should you fail to report the theft within a certain period of time
(anywhere from 2 to 60 days). A lost debit card is like cash to a thief --
they simply have to forge your signature to use it. (Customers get a $50
maximum liability with most credit cards. They can be responsible for up
to $500 in fraudulent debit-card charges.) Consumers recently raised a stink
about this, and debit-card issuers like Visa and Mastercard have made moves
to improve security and liability. Still, read the fine print and make sure
your lender offers you the same protections as a standard credit card.
Secured credit cards also look like standard Visas and Mastercards. They
let consumers with shaky credit histories deposit money into an account and
charge goods and services against anywhere from 50% to 100% of the amount.
Some charge exorbitant fees to even apply for the card. Make sure they will
refund it if you are not accepted.
Now, onto the Debt Doctors.
Next: The Debt Doctors »
See Also