Should travelers use credit or debit cards for purchases?

Should travelers use a credit card or debit card to make purchases and pay their bills while traveling? To me, it’s a question everyone should explore, even when not traveling.

Most Americans, for example, use credit or debit cards to pay for goods and services. According to a study by Total System Services Inc. (TSYS) published in 2015, 35 percent of U.S. consumers prefer to pay for purchases by credit card, and 43 percent by debit card. That’s 78 percent of all payments in the US made with “plastic,” not cash, store accounts, alternative credit accounts, etc. It’s important for them to know which card to use.

Why use a debit card?

Perhaps the most important reason to use a debit card is to help control spending. For example, I’m sure you’ve read about young people in college using credit cards and quickly incurring significant, unaffordable debt. With a debit card, you can’t spend what you don’t have on deposit at your bank.

There are times it’s possible to save money using a debit card. Some stores charge extra to use credit cards or conversely give a discount for using a debit card instead of a credit card. If the savings are enough, using a debit card can make sense.

Often travelers need cash in local currency for purchases, tips, and other purposes. Using debit cards instead of credit cards at ATMs is a better choice for this purpose. Obtaining cash with a credit card will trigger interest charges on the card’s account.

Why use a credit card?

The most important reason to use a credit card is fraud protection. If a credit card account is fraudulently used, the maximum liability is $50. If a debit card account is fraudulently used, the maximum liability could be as much as $500 or more. Some banks have capped debit card liability to $50, while some U.S. states have done the same. To be safe, however, always report a missing debit card or any fraud you notice in your account within two days so your account’s maximum liability will be limited to $50.

Even if your debit card liability is capped at $50, credit card holders still have a substantial advantage if their account is fraudulently used. For credit card users, notifying the card issuer will temporarily suspend fraudulent charges. You won’t have to pay them while they are investigated.

For debit cards, most likely the payment was already withdrawn from your bank account when the fraud was discovered. Recovery of the money to your account can take precious time while the fraud is being investigated. By law, that time can’t be longer than ten days, but during that time, you’ll have to wait for your money to be redeposited to your bank account. Fortunately, many, but not all, banks voluntarily restore your funds more quickly than the law requires.

Preauthorization is typically more of a problem for debit card users than credit card users. Some companies, particularly hotels, gas stations and car rental firms routinely put through a preauthorization on credit and debit card accounts for the estimated maximum cost of the final transaction, which may not be completed for several days, sometimes longer. When a preauthorization is made, the card issuer blocks the amount of the preauthorization from use by reducing the available credit in a credit card account, or putting bank account cash on hold in a debit card’s linked bank account.

As an example, I’ve had preauthorizations by service stations on my credit card well in excess of my actual gasoline charge. Just last week, when I filled-up, the preauthorization was $100, but the fill-up was just $30. It took three days for the preauthorization to be replaced with the actual charge.

For most credit card customers, unless they are extremely tight to their credit limit, that’s not a problem. On the other hand, many don’t carry large balances in their bank account. When a service station, or multiple stations if your on a driving trip, puts in a preauthorization for $100 blocking those funds from being used for three days, it could bounce a check or two, causing considerable extra expense, and embarrassment.

Hopefully, all restaurants will soon utilize portable credit card processors which can be brought to the table, but until that happens, many restaurants are among the most dangerous locations to use credit or debit cards, because the cards are taken out of sight. Credit cards are a better choice there due to their superior fraud protection and fewer preauthorization problems when restaurants anticipate you adding a tip to your payment.

Conclusion

In my opinion, especially for travel, debit card use should be confined to ATM use, and only at banks and hotels where they are monitored. Stay away from ATMs at other locations, such as gas stations and small stores, which are prime targets for thieves installing “skimming” devices which read your card’s information, as well as record your PIN. Use credit cards for all your purchases while away from home.