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5 places you shouldn’t use your debit card (and 3 situations when you should)

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AOL.com 

As someone who’s learned the hard way, I’ll cut to the chase: your debit card isn’t always your best friend. Sure, it’s convenient, but it’s also directly connected to your bank account. That’s why there are several places and situations where using your debit card puts your money at risk, takes away potential rewards and provides little to no purchase and travel protections.

Instead of my debit card, I use my credit card at restaurants, gas stations, hotels and more. Why? It’s not just about security, as this has saved me a lot of money and headache over time. I’m not saying you should ditch your debit card since it still has its place. So let’s explore where you shouldn’t use your debit card and when you should.

As a certified personal finance educator, I’ve digested a lot of financial information. One of the most valuable lessons I’ve learned is that restaurants aren’t a great place to use my debit card.

Why not to pay with debit at restaurants

  • Tip adjustments. When you pay for your bill with a debit card, the restaurant puts a hold on your account for the bill amount, then adjusts it to include your tip. This process leaves room for mistakes when adding tips, but disputing an erroneous charge is tricky with debit cards since the money leaves your account once your bank processes the transaction.

  • Missed rewards. Most debit cards don’t offer rewards on your spending, including at restaurants. Think of credit card rewards as a small discount on every meal. If you have a rewards card, using debit over credit means you’re leaving money on the table.

  • Exclusive dining access. Debit cards are pretty slim on benefits, and it’s hard to find one that gives you access to exclusive culinary events or special spots at popular restaurants.

How you should pay instead

  • Use a credit card for takeout and dining to make it easier to dispute any unauthorized charges. That’s because credit cards give you the right to dispute wrong, duplicate or unauthorized transactions. And you don’t have to pay the disputed amount until the credit card issuer investigates the issue.

  • Choose a rewards card that returns rewards on your spending at restaurants in the form of points or cash back.

  • Unlock even more benefits by opting for a premium dining credit card such as the American Express Gold, which offers dining perks such as statement credits and exclusive access to culinary events.

My restaurant card strategy

I always carry a credit card that offers at least at least 3% cash back or 3x points per dollar on dining. For example, the Capital One SavorOne comes with unlimited 3% cash back on dining, entertainment, grocery stores and more, making it a great card option when I’m at a drive-through or a restaurant. By using it consistently, I’ve earned enough rewards to treat myself to several great meals at fancy restaurants.

Filling your gas tank shouldn’t empty your bank account, but swiping your debit card might do just that. Gas stations and debit cards mix as well as oil and water.

Why not to pay with debit at gas stations

  • Large holds on funds. I recall how my heart dropped after seeing a $150 charge on my debit card before I began fueling. Turns out, it was a typical open-end transaction that gas stations use to guarantee that they’ll get a full payment after you refill. However, it can take several days to clear.

  • Missed rewards. Just like at restaurants, by swiping with debit for gas, you could be missing out on valuable rewards that you can accumulate over time and cash out or put toward travel.

  • Skimming devices. Credit card skimmers are card readers that criminals illegally install at fuel pumps to steal card numbers and PINs. Gas pumps are left in the open overnight, making them an easy target. And once a criminal has your debit card information, they can use it to drain your checking account.

How you should pay instead

  • Add a layer between your bank account funds and your daily transactions with a credit card offering fraud protection, if you need it.

  • Use a credit card for gas purchases to avoid large holds on your bank account balance. Instead, the hold is put on your card’s line of credit.

  • Choose a credit card that offers bonus rewards or cash back for gas station purchases.

My gas station card strategy

Many credit cards that earn rewards at the pump offer up to 5% cash back. That’s a $2.50 reward on a $50 gas refill. One example is the Citi Custom Cash, which earns 5% on your top eligible spending category up to $500 every month. Its categories include gas stations, restaurants, grocery stores and more. Cards like the Citi Custom Cash that offer elevated rewards on several categories save my poor memory the extra work needed to remember which card to use.

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As someone who’s passionate about traveling, I’ve checked into more hotels than I can count. Along the way, I’ve learned that when it comes to accommodations, my debit card is better left sleeping in my wallet.

Why not to pay with debit at hotels

  • Hefty holds. Hotels often place large holds on your bank account that can be more than your entire stay to cover potential extra charges. These holds can tie up your holiday funds — and may even trigger overdraft fees, if you’re not careful.

  • Lack of travel protections. Debit cards don’t often come with travel protections like trip cancellation coverage or emergency evacuation assistance. It means you’ll pay out of pocket for any travel plan changes or unexpected events.

  • Limited dispute options. It’s hard to contest erroneous charges when they’re already gone from your bank account. I learned that the hard way when I lost $150 due to a billing error at a hotel that was never fixed.

How you should pay instead

  • Use a credit card for hotel bookings to avoid large holds on your bank account’s balance.

  • Opt for a travel credit card that offers a range of travel protections and financial help when plans change due to sickness, severe weather, injury or a sudden change of plans.

  • Ask to place all charges on a credit card when checking in or out of a hotel to simplify the process of disputing any wrong items on your final bill.

My hotel card strategy

I like keeping a dedicated travel credit card in my wallet. Among the best travel cards are the American Express Platinum and Chase Sapphire Reserve, which earn 5x and 10x points per dollar, respectively, when you book a stay through their travel portals — like earning 5% to 10% back on your travel. These two travel cards have also saved me thousands of dollars after travel plans went out of the window due to weather, delayed flights and more.

Buckle up, because renting a car with a debit card can turn a smooth transaction into a bumpy financial adventure. Many car rental companies treat debit cards like a spare tire — to be used only when absolutely necessary. Steering clear of using them as a payment method when you’re planning to hit the road.

Why not to pay with debit at car rental counters

  • Debit card restrictions. Even if they accept debit cards, rental companies might require a hard credit inquiry, evidence of travel plans or a credit card on file (even if you’re paying with a debit card) before allowing you to drive off the lot.

  • Excessive holds. Most car rental companies place a hold on your account that equals or exceeds your rental cost. This hold stays for the entire length of your rental, locking up your funds.

  • Lack of insurance. Debit cards offer little in the way of car rental insurance, forcing you to either pay out of pocket for coverage or be liable for any damage to your rental.

How you should pay instead

  • Use a credit card when booking and paying for your rental car to avoid needless complications and potential credit checks that can temporarily impact your credit score.

  • Choose a credit card for your rental car’s security deposit to keep your bank funds free from excessive holds.

  • Opt for a credit card that offers car rental insurance or a collision damage waiver when you use it to pay for your rental. This typically covers your rental against damage, theft and more.

My car rental card strategy

I always use a premium travel credit card like the Capital One Venture X at car rental agencies to avoid any headache and simplify the paperwork needed before getting on the road. Venture X offers primary (not secondary) car rental coverage, which means it kicks in for the situations it covers before requiring my personal auto insurance.

I love technology and gadgets, but upgrading to the latest phone or the sleekest fridge usually comes at a hefty price. Paying this price upfront with your debit card could mean footing the bill should any problems arise.

Why not to pay with debit for large purchases

  • No purchase protections. While credit cards typically come with purchase protections that's like insurance for your purchases, debit cards don't. If your warranty doesn’t cover a crack on your new phone’s screen or a component in your new microwave, it would be up to you to pay for a fix out of pocket.

  • No intro APR offers. Debit cards pull the entire cost of an item from your linked bank account right away. Unlike credit cards, you can’t pay for large purchases over time, which means you miss out on financing opportunities that can improve your cash flow.

  • Missed rewards. Big-ticket items are a great way to earn a large amount of points or cash back. Sadly, the majority of debit cards don’t offer rewards on the purchases you make.

How you should pay instead

  • Buy large items with a credit card that offers strong purchase protection — typically protects up to 90 days against damage and theft. Many cards also offer extended warranties that add up to a year to your manufacturer’s warranty.

  • If you’re planning a big purchase, apply for a credit card offering 0% intro APR for 12 months or more on purchases. You can then pay for expensive items over time without worrying about hefty interest charges.

  • Choose a credit card that offers high base rewards on all purchases, regardless of which category they fall into, to maximize your return on big-ticket items.

My large purchase card strategy

When I’m eyeing a major purchase, I choose from my credit cards one that offers the best protections and rewards for the item I’m buying. Better yet, if it also has an active 0% intro APR offer.

That’s why I love my Chase Freedom Unlimited. It offers purchase protection, extended warranty coverage and a base rewards rate of 1.5% on all purchases. New customers may be eligible for a lengthy intro APR offer of 15 months. All of these benefits with no annual fee — what a deal!

While there are several places and situations where credit cards shine, your debit card still has its place and time. Here’s when you should opt for your debit card over a credit card:

  1. Cash withdrawals. Your debit card should be your go-to for withdrawing cash at an ATM machine. (Just watch out for skimmer devices to avoid debit card fraud.) Taking out cash from an ATM with a credit card can be quite costly, since this counts as a cash advance and attracts high interest almost immediately.

  2. Paying for rent, mortgage or loan payments. Most landlords and financial institutions don’t accept credit card payments — or they charge a fee when they do. That’s where your debit card can be the more economical option.

  3. Farmers markets and small businesses. Using your debit card to pay for coffee at your local cafe or your fresh produce at the farmers market supports your local community. That’s because credit card companies charge processing fees that can eat into a small merchant’s profits.

Yes, your debit card can be used without its PIN. While in-store purchases typically require entering your PIN, there are situations when someone can use your debit card without it. For example, online purchases typically require only the debit card number, expiration date and security code. Some debit cards also support tap-to-pay transactions, which don’t always require your PIN.

Yes, but as with many payment options, using your debit card online carries some risk you can reduce by being cautious about where you shop. Before using your debit card online, verify that the website you’re on is the legitimate website of the merchant. Opt for intermediary payment options such as PayPal, when available. And don’t use public WiFi networks to avoid exposing your personal and financial information over an unsecure connection.

Yes. Because your debit card is often directly linked to your bank account, somebody with your debit card or number can easily access your funds. That’s why it’s a smart move to put a limit on your daily or weekly debit card transactions through your online account or mobile app. Additionally, most banks that issue debit cards use fraud detection systems and zero-liability protection, which means you won’t be responsible for fraudulent charges if your card is lost or stolen.

Yahia Barakah is a personal finance writer at AOL with over a decade of experience in finance and investing. As a certified educator in personal finance (CEPF), he combines his economics expertise with a passion for financial literacy to simplify complex retirement, banking and credit topics. He loves empowering people to make informed financial decisions that improve their everyday and long-term wellness. Yahia's expertise has been featured on FinanceBuzz, FX Empire and EarnForex. Based in Florida, he balances his love for finance with freediving, hiking and underwater photography.

Article edited by Kelly Suzan Waggoner