Before you go holiday shopping, keep in mind that 12 million people still have purchases on their credit cards from last year. But don't think paying as you go with your debit card is necessarily the answer. Consumer Reports Money Adviser warns that there can be serious drawbacks to using your debit card for holiday purchases.
With a debit card, if you have a problem with the purchase, you can't dispute the charge the way you can with a credit card.
And for big-ticket items like electronics, debit cards rarely give you a longer warranty, something you get automatically with many credit cards.
Consumer Reports also advises against shopping online with a debit card. If your security is compromised, thieves can drain your entire bank account. And if you don't report fraudulent activity on your debit card within two business days, you can be on the hook for $500 or more. With a credit card, your losses are limited to $50.
Another big minus with debit cards: If you spend more than you have in your account, you'll probably be socked with hefty overdraft fees.
If you don't have a credit or debit card, you may be tempted to use prepaid gift cards, but Consumer Reports says those can be a bad deal. There may be a fee to activate it and a fee every time you use it. There may even be a fee when you don't use the card.
So this holiday season, using a credit card is a smart money move, but only if you keep your balance under control and pay it off promptly.
Consumer Reports says for small purchases that you probably won't return, using a debit card is fine. But if you're concerned about identity theft, press the "credit" option when using it and not the "debit" option. That way you don't have to punch in your PIN, which identity thieves target in order to steal money from your bank accounts.
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