No doubt about it, debit card usage is a big part of the new normal on Main Street these days as consumers try to manage credit card debt. According to the TSYS & Mercator Advisory Group Debit Survey 2011, debit is now the preferred payment type in most point-of-sale locations, beating cash, credit cards and checks.
But that doesn't mean you should use debit cards all the time. In fact, there are some places and times that using a debit card is actually a lousy proposition.
For example, using a debit card online can work against you. If you have a problem with the purchase or your debit card number is stolen, it's a huge hassle to get the money restored to your account and making your card number safe and secure again. In the online world, credit cards are usually a better bet.
Here are some other instances where debit card usage is a bad idea:
Rental or security deposits. If you have to put money down to rent a car or heavy duty home improvement equipment, try not to use a debit card. Why? Because the business will actually take the money out of your account in the form of a security deposit. You'll get the cash back when you return the car or equipment. But with a credit card, the money is just "frozen" but not actually charged and you won't ever notice it's gone.
Restaurants and bars. There are way too many prying eyes around a dining establishment to trust using your debit card. Apart from the risk of having your card stolen, restaurants are one of those rare places where someone actually walks away with your card and you don't see them for a few minutes. Much better to use cash when dining out.
Regular payments. Businesses love to get their sticky little fingers on your debit card number so they can extract dues straight from your bank account on a regular basis. Whether it's a gym or your insurance company, you're better off using a credit card. That's because if there's a dispute, the business won't take the cash right out of your checking account if they don't have your debit card number.
Wi-Fi hot spots. Never use your debit card for an online purchase while at a coffee shop or other business that offers free Wi-Fi access. Many of those businesses have unsecured wireless connections, so it's much easier for hackers and scammers to log on and steal your data.
Any retail outlet where you choose the "credit" option. Debit cards allow you to choose between a debit (having cash taken straight out of your account) and a credit transaction (where the money will be taken out but it could be a few days later). For one, credit purchases cost the retailer more cash in swipe fees, so you could be hurting a small business owner. But the real problem is the delay when choosing credit — you may forget the purchase and not account for the money. That can lead to an overdraft situation and the onerous fees that go with them.
Debit cards are great financial tools, and it's easier carrying a card that a wad of cash. But debit cards shouldn't be used all the time — and the situations listed above should be at the top of your list of "no debit" zones in the future.