THE BLOG
11/10/2008 09:18 pm ET | Updated Nov 17, 2011

Why you should never pay with a debit card.

In a Michael Pollan tribute, if you don't want to read the whole article, here's the gist: credit cards protect you from liability. Debit cards expose you to it.

Debit cards look, feel, and superficially behave just like credit cards. But they operate quite differently. Credit cards allow one to borrow up to a pre-set spending limit, your "credit limit." (Some credit cards such as Citi's PremierPass or Diamond Preferred Rewards card, offer "no pre-set spending limit" akin to traditional charge cards, the most famous of which is American Express, but there's no effective difference.)

Not so with debit cards. Debit cards are a check book posing as a credit card. When you use your debit card, you are writing a check against your bank account. To many people, this represents the advantage of debit cards. Hey, I can't be financially irresponsible, if I don't have the money, I can't pay!

Would that it were so. Your bank wants you to be able to pay even if you don't have the money. If you make a charge using your debit card and the funds aren't in your bank account, the bank will honor the charge, but will charge you a fee, somewhere between $25 to $50, per transaction.

How does it happen? You expect a check to be deposited in your bank account. Or you don't expect a certain withdrawal to take place before a certain deposit. You have roughly calculated out your bank account, but remember, you don't have a checkbook to actually keep track of it anymore. So you go to Starbucks. You get a latte. Whoops! That's a $45 latte now. Then you buy a pack of gum. Whoops! That's a $41 pack of gum! And so on. Many people might use their debt cards a dozen times over the course of a weekend. And you won't know that you are getting overdraft fees until you check your bank account--maybe not even then if they don't post over the weekend. (Though if this happens, it is a bank error, and you can fight them to the death.)

I have personally accompanied two friends to banks to contest these overdraft fees. In one case, the bank eventually reversed the $500 in fees. In an entertaining turn of events, the bank manager, who was gay, took sympathy on my friend because he evidently thought we were partners. In the second case, the very heterosexual bank manager did not take pity on my then (female) romantic interest. Well, she's still female, as far as I know. She's just not a romantic interest. You will be lucky to get fees reversed. They are hugely profitable for banks and they have very little interest in reversing them.

But it gets worse. Your wallet gets stolen by two thieves working together. Thief A takes your credit card. Thief B takes your debit card. Thief A and you both got a better deal. Not only if thief A going to be able to charge more junk on your credit card, but you won't be liable for any of the charges. Ah, but thief B is hurt by this and observes that he can probably charge just as much junk on your debit card and you still won't be liable for the charges, because your bank will refund you the money. Well, thief B has a point. The bank will likely eventually reverse the charges. But in the case of A, the money was just theoretical as far as you were concerned. In the case of B, the money was very real and very in your bank account. And now its very gone, so good luck with your rent payment until your bank gets around to returning the money. The fact that Bank begins with a B is a pure coincidence.

In summary, credit cards protect you from liability. Debit cards expose you to it.

I understand the counter argument. It is great to demonstrate fiscal restrain and responsibility. But why behave differently with a credit card? If possible, you should always pay your credit card balance in full each and every month. (Unless you are enjoying a 0% promotional rate, in which case you should pay the credit card bill amount every month into an interest bearing account and then pay it when the terms of the promotional rate expire.) If you just know that you can't do that, get an American Express charge card which you will have to pay every month in full. (American Express has softened their views on this, to the detriment of the credit spartans amongst us, allowing people to pay over time or some such.)

Here's what you do: never use your debit card for purchases. Just use to withdraw money from your ATM. Don't sign the card. Can't do that? Sign your card: "Ask for ID and PIN." That way any thief will be unable to use your card. I understand that some people have difficulty getting credit cards. If so, get a co-signer, a card with a very low limit, or, at last resort a secured credit card that has an option to be converted into a regular credit card after some period of good behavior. (If there is interest in the comments, I will write a column about getting and maintaining good credit.)