Which card should you use: Debit, credit or prepaid?

Credit, Debit or Prepaid Charge CardsWhen’s the last time you wrote a check? If you’re like most people, checks are a thing of the past and you’re using either a credit card, a debit card or a prepaid card for the majority of your purchases, online or in person. But, if you use these cash-substitute cards interchangeably, you could be inviting problems.

The safest bet is to know which card to use in different situations. Here are some helpful hints.

Use a debit card
• For convenience
It is a lot safer than carrying a lot of cash and quicker than writing checks. It’s great for smaller, everyday purchases. But, be sure you don’t spend more than you have in your account, or overdraft fees could end up costing you big time.

• To control spending
A debit card withdraws money directly from your account, which means you’re spending money you have, not “borrowing” future funds plus interest if you don’t pay the balance in full and on time.

• For “cash back” and ATM withdrawals
Using your debit card at retail locations offering “cash back” and at ATMs is easy. (But, pass right by any machine that seems at all suspicious. Crooks have been known to “hot wire” machines in order to steal your card information, PIN included.)

Use a credit card
• When purchasing big-ticket items
If there’s a problem after the sale, you can dispute the charge and, by law, the credit card company will pursue the matter.

• When buying online
A debit card is connected directly to your bank account. If the seller turns out to be less than reputable, or the site is a hoax, you could lose much more than the cost of your purchase.

• When you’re a new customer
Until you get to know the seller and the quality of the merchandise being sold, it’s wise to pay with the protection a credit card offers.

• When dining out
This is one time when you give your card to a stranger and it leaves your sight, making you, and your entire bank account, extremely vulnerable.

• When paying “in advance”
Hotels, car rental agencies and others who require your card information upfront traditionally “block” a larger amount than you’re expecting to pay – just in case you end up spending more. This “blocking” freezes that amount of money in your account, reducing the total you may have available for other purposes. The “block” may remain in effect for days.

• When building credit history.
It’s a myth. Debit card usage has no effect on your credit history or credit score. Using a credit card and paying your balance in full and on time can help build a positive credit rating.

Use a prepaid card
• For digital living
Some people prefer to manage their finances entirely via a prepaid card. They have their paycheck directly deposited to the card, and use plastic rather than paper for purchases and bill-paying. For others, a re-loadable prepaid card is convenient to have “just in case,” and the set dollar amount on the card can prevent overspending. It’s also a great starter card for teens.

But, be sure to read the fine print before you apply. The card may come with monthly charges and steep fees for ordinary use, such as re-loading, checking your balance or ATM transactions. And, not all prepaid cards provide deposit insurance. Even the Federal Trade Commission has concerns about consumers’ protection when it comes to what they call GPR, or General Purpose Reloadable cards.

Click here to learn more about the three types of payment cards.

A word of warning. No matter which card you use, be sure to cancel it immediately if it’s lost or stolen. If you notice anything suspicious about your account, contact the bank or the issuer of the card as soon as possible to prevent further damage. Although it’s just a little piece of plastic, the card represents your hard-earned money. We want to help you keep it safe.

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