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Monday, August 18, 2008

If Paid Monthly, Credit Cards Better Than Debit

Among the debates that tend to vex shoppers -- paper vs. plastic, plasma vs. LCD -- there's one standby: Credit or debit?

The decision isn't a trivial one. When you shop, how you pay for your purchase can determine how much protection you'll have should the merchandise prove defective, how quickly you'll get your money back and whether you'll be digging yourself out of debt years later.

Yet there's no one right answer for everyone. If you have the discipline to pay off your purchases on time each month, consider using your credit card, because you generally get more protection against faulty merchandise and fraud.

If, on the other hand, you tend to buy now and pay months later, you should stick to debit cards, cash or checks, because the money will come straight out of your bank account, sparing you interest charges. Just recognize that, even with debit cards, you could fall into debt if you're not careful. That's because banks are making it easier for you to overdraw and then charging you stiff fees for doing so.

If whatever you buy proves defective, credit cards allow you to dispute the charges. Some debit cards do, too. But with debit cards, the benefits will vary by issuer, and sometimes depend on whether you signed for the purchase or instead entered a PIN.

Meanwhile, if fraudsters strike, you often have stronger protection with credit cards than with debit cards. With credit cards, under federal law, you're liable for no more than $50 if fraud occurs, though most issuers don't hold you liable for even that much. With debit cards, your maximum exposure is $50 if you report it within 48 hours. Report it after 2 days, and you could be liable for up to $500. Take longer than 60 days, and you could be responsible for the entire amount of fraud.

Banks often provide more protection on debit card transactions than required.

By: Kathy Chu
Detroit Free Press; August 17, 2008