Six dangers of using a debit card

Rachel Wait reveals why you may not always be better off paying with a debit card.

These days, it’s so easy to pay for everything using your debit card rather than carrying around a wallet full of cash. And for many of us, paying with a debit card is preferential to racking up debt on a credit card.

Unfortunately, however, paying by debit card doesn't come without its disadvantages – as I’m about to reveal.

1. Extra charges

If you’re planning to pay for something using your debit card, watch out for minimum spending limits at certain retailers and bars. Sometimes you'll find that you have to spend at least £10 to be able to use your debit card and if you don't, you'll be charged a fee. So you'll either have to pay this fee or spend extra money anyway to avoid being charged.

What’s more, if you’re using a debit card instead of a credit card as a deposit for a hotel room (although not all places will let you do this), the hotel will freeze a sum of money on your debit card as protection (in case you go crazy when you see the minibar, for example).

This means you won’t have access to this money and should you need to pay for something else while that money is being held on your card, you could be forced to go into your overdraft. And as a result, you could end up forking out hefty overdraft fees. Even if this money is later returned to you, it can take several days for the money to be released into your account.   

So if you are going to use your debit card, make sure you have sufficient funds in your account to cover you.

2. Losing track

Unless you keep a very close eye on your bank statements, it can be easy to lose track of exactly what you’re spending where if you always pay by debit card.

This may mean you end up spending more than you realise, which again, may take you into your overdraft and could result in you racking up a lot in fees.

So make sure you keep a close eye on all your transactions and set yourself a budget so that you don’t end up going into the red. This is really easy to do with the lovemoney.com online banking tool because if you register your accounts, every time you make a purchase – no matter which bank account or credit card you use – the tool will record it for you, and then allow you to categorise all your transactions so you know exactly what you're spending your money on every month.

3. Less protection

When paying by credit card, you generally receive the bill for your purchases several weeks later. This gives you the opportunity to check your bill carefully for any mistakes before paying up.

Should there have been a problem with your purchase – perhaps the item you bought was damaged, for example – you'll also be able to dispute it.

If you’ve spent between £100 and £30,000 on your credit card, you’ll have the added protection of Section 75 of the Consumer Credit Act. This means that if the contract you have with the supplier is breached and you’re not satisfied, you may be entitled to a refund.

However, with a debit card, the money is taken instantly and you don’t have this level of protection. This means that should you need to have a dispute with a merchant about your purchase, you may have to fight hard to get your money back.

That said, there is also a form of protection for Visa debit cards known as the Visa debit chargeback scheme. But it’s far more limited than Section 75. Find out more in Why plastic really is fantastic.

4. Skimming

Using a debit card also makes you more susceptible to a fraudulent practice known as skimming. The most common form of skimming occurs when you use an ATM and don’t realise a false front has been attached to the card reader – where you insert your card. This then captures your card number and transmits it wirelessly to someone waiting nearby.

A hidden camera is also likely to be attached to the machine and will capture your PIN when you enter it. Criminals can then make a copy of your card and use it, along with the PIN to withdraw money and buy goods.

So make sure you keep your wits about you when you use any ATM and if it looks dodgy, use a different one. And don’t forget to always cover the keypad as you enter your PIN to prevent anyone (or any cameras) from seeing it. Find out more in Five ways to protect yourself from ATM fraud.

5. Won’t build up your credit score

If you’re trying to build up your credit score, spending with a debit card won’t help you. Unlike with a credit card, any transactions you make with your debit card won’t be reported to credit agencies.

If you’ve never applied for credit, your credit history will be blank. Although you may think this is ok, in fact it’s not because there’s no evidence that you can ‘handle credit responsibly’. And this means lenders won’t feel as comfortable lending to you as to someone with a good credit history.

As a result, if you later need to apply for credit – perhaps because you want to take out a mortgage, for example – you may find it difficult. Read 10 steps to a perfect credit record for some top tips.

6. Fewer benefits

If you’re always spending on a debit card rather than a credit card, you could be losing out. That’s because many credit cards offer rewards such as cashback deals and airmiles. For example, the American Express Platinum Cashback Card offers 5% cashback in the first three months (up to £100) and up to 1.25% cashback after that.

So if you religiously pay off your balance in full each month, receiving these rewards can be well worth it! (Just make sure you do clear your balance in full every single month to avoid being hit with a high rate of interest.)

For more information, read Five ways to make money from credit cards.

So next time you go to pay by debit card, think carefully about whether there’s a better alternative.

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