Funny that this issue has come up a couple of times today. Both My Dollar Plan (25 Reasons to Love Credit Cards) and Blueprint for Financial Prosperity (Your Take: Why Use Debit Cards) wrote articles that touched on the lack of debit card fraud protection compared to credit cards.

I’m a little surprised that people are afraid to use a debit card due to fear of fraud or theft. According to Visa, you get the same fraud protection when you buy things with your Visa debit card-

*Visa’s Zero Liability policy took effect April 4, 2000, and is a great improvement on the previous policy. The former policy required that you report fraudulent activity within two business days of discovery. After this two-day period, you could be held responsible for up to $50 of the unauthorized charges. With the new Zero Liability policy, you’re no longer required to report fraudulent activity within two days and you’re not responsible for any fraudulent transactions made over the Visa network.

The Zero Liability policy covers all Visa credit and debit card transactions processed over the Visa network—online or off. The only transactions not covered under the Zero Liability policy are commercial card, ATM, and non-Visa-branded PIN transactions.

For transactions on other networks, the liability decision is left to the financial institution that issued your card. The issuer has the option of extending the same protections afforded by Visa’s Zero Liability policy.

You may also have more protection offered from your bank. I primarily use a WellsFargo Visa debit card right now and here is what they do on top of the Visa Zero Liability policy-

You won’t be responsible for promptly reported unauthorized transactions
You won’t be held responsible for any unauthorized purchases or ATM transactions, as long as they are reported promptly.

I don’t know. It seems pretty clear to me. I have no reason to be afraid of fraud when using my debit card (at least for CREDIT transactions). It is a little unclear what will happen to fraudulent PIN transactions, but that would of course require someone finding or stealing your card and knowing your PIN.

I had a fraudulent transaction once posted to my account via a stolen debit card number and I called the bank and had it removed (this was a smaller bank, not sure if it would have been better or worse with a big bank). It took about three days to clear up, so it is true that those funds were frozen during that time, but I was never actually at risk of losing the money. Sure, that was inconvenient, and I’ll give credit cards the advantage there, but are debit cards really that risky?

You may have other reasons for using a credit card over a debit card, rewards programs being the obvious number one choice, but I honestly don’t see the security risk. Am I missing something else?

By Eden, Fri 4 Jan 2008, 8 Comments, Categories: Credit Cards

*update* – I have created a new page (Credit Card Stories) to keep track of stories like the one below in an easy to find location. If you know of a great story to share or have written your own, include a link in the comments section or email it to me (financeandfat [at] gmail [dot] com).

I have read a lot of bad stories about credit cards over the past few months that I have been paying attention to the personal finance blog world. These stories always serve as sharp reminders of why I need to close my credit cards for good and never look back. In an effort to catalog these stories and have them ready in case I am tempted to sign up for another credit card some day, I will start posting the links to these stories on my site.

Thanks to Lynnae at BeingFrugal.net I have a great link to kick this series off – Credit Card Companies Want to Eat You Alive!. Lynnae did a great job of capturing all of the annoyance and frustration she had to go through thanks to her credit card company- and this is from someone who was paying attention and managing the account as best as you could.

Remember, no matter how smart you think you are and how well you manage your credit cards and your payments, you will never have the upper hand! The credit card companies are in control and the burden of proof is on YOU if THEY make a mistake. Ask yourself if it is really worth it. It’s not worth it to me. I am choosing to spend my time on this earth doing things more interesting than trying to manage credit cards, check on their mistakes, and deal with the idiots on the phone in the inevitable case that they make a mistake and try to steal my money.

By Eden, Fri 4 Jan 2008, 12 Comments, Categories: Credit Cards

*update* I think I left the door a bit too wide open for me on this issue. I just needed to remind myself why I don’t want another credit card.  The question is still a good one to ask, but I finally know that the answer is no for me.

My article on taking a look back at our first cash only Christmas was included in this week’s Carnival of Personal Finance, hosted by We’re In Debt (great site by the way, I recommend subscribing if you don’t already). The ‘King of Debt‘ at We’re in Debt made an interesting comment on my article-

I would argue that they could have earned rewards using their credit cards, but cash only is just that, cash only with no possibility of spending more.

I don’t disagree with the comment but part of my get-out-of-debt plan is cutting up my credit cards and closing accounts as I pay them off so going out and getting a rewards credit card isn’t an option for me right now.

This topic really just brings us back to the old argument of what we are doing with PERSONAL finance and why we have to consider the emotional and non-mathematical parts of the equation. Looking strictly at the numbers, yes, you would be better off spending your money on a rewards credit card and paying off the balance early each month (never carrying a balance). That is true IF you have the discipline to pay off the balance on time AND the discipline to not spend more money because you are using your rewards credit card. Can you honestly say you are never tempted by your rewards points to buy a little more than you had planned before? Maybe you aren’t and if so, you are the person that should be using this strategy. If I am honest with myself, I know that I would be tempted to spend more money in order to earn the rewards. If I spend less money using cash (and debit cards) then that is how I need to pay for things until I develop better discipline with my spending.

Taking control of your personal finances really requires a focus on the human and emotional aspect of your money (we are starting with the assumption that your finances got out of control like mine). I can’t just look at the numbers, do a little math, and suddenly be out of debt. That is part of the process, but I have to understand what got me here. Honestly, I think I’m a shopaholic. I thought that seemed crazy at first, but after reading this great article by J.D. at Get Rich Slowly, I really think that is me. Like most men, I don’t get any joy out of going to the mall or shopping anywhere in general, but if I sit down at my laptop with a cup of coffee and visit Amazon.com, I could easily spend and spend some more without thinking about it. In fact, I did just that when I got my Amazon.com rewards credit card! Oh how I loved racking up those Amazon points- well, guess what? I couldn’t use that card wisely and it only took a few months for me to max it out. Is that stupid? Absolutely that is stupid. I am not trying to suggest that a rewards credit card is evil, but in the wrong hands it certainly is. No offense to anyone who has struggled with alcohol, but this is much the same situation- the bottle of beer in itself is not evil, but in the wrong hands it can do great damage.

I am not trying to argue with the comment regarding the benefits of rewards credit cards. If I didn’t make it clear, I absolutely agree with that opinion. However, I want to stress the fact that this strategy is not for everyone. You need to know yourself, be honest with yourself, and do what works for you to save money and take control of your finances. I am not saying that I will never use a rewards credit card. I may get to the point where I can have the discipline to use it as a personal finance tool and actually earn money with it, but I’m not there now. I actually admire the people who are able to do this- they must truly be wise and disciplined. Frankly, I love seeing people ‘stick it’ to the credit card companies and earn money using the very same piece of plastic that is the downfall of so many others and costs most people thousands of dollars a year in interest charges. I can’t argue with the math, I just know I can’t trust myself in that area yet.

By Eden, Mon 31 Dec 2007, 5 Comments, Categories: Credit Cards, Life, Spending