Did you know that using a debit card can exacerbate the problems the unpredictable nature of travel may bring, even further? It’s true. You should never use a debit card to book travel, pay for things while traveling or really… ever, unless you’re taking out money from an ATM.
Here’s the full story on why it’s not actually all that responsible to pay with a debit card, even if you’ve got plenty of money in the bank, particularly with many travel businesses at risk of collapse.
When airlines folded in recent years, stranding passengers all over Europe and the USA, the list of passengers needing refunds was instantly split into two groups: those who would be getting them, and those who probably would not.
If you used a credit card to purchase your airfare with the carrier, you could instantly file a chargeback for the full amount. If, however, you used a debit card for your ticket purchase, you had little to no hope of ever seeing that money again, at least on legal grounds.
It’s that simple.
Credit cards carry vastly different consumer rights and protections than debit cards, while also offering travel benefits designed to encourage you to use them. In the USA this is down to the Fair Credit Billing Act, and in the United Kingdom it’s “Section 75” of the Consumer Credit Act.
In both cases, these rules only apply to credit and not debit card transactions. That’s not to say that you may not be able to get your money back if you pay via debit card, but that’s down to the discretion of your bank, and not a steadfast law.
Plus, if compromised, credit cards aren’t nearly as sensitive as a debit card, which gives someone instant access to empty your checking or current account, and perhaps even savings too.
With credit cards, the maximum a person can be held accountable for is $50, whereas if someone compromises a debit card and empties a big savings account, the rules are starkly different. With a debit card, you’re on the hook for $50 if reported immediately, but that jumps to $500 if not reported within two days and is uncapped if not reported within 120 days in the USA.
Almost assuredly, at some point you’ve checked into a hotel, or rented a car and were informed about needing a card for incidental charges.
These “holds” are usually just in place in case you use the minibar, or scratch up a rental car, but at up to $150 a day, they can be fairly steep. If you use your debit card, that hold takes up to 10 days to clear, which means they are then holding your actual money in the interim, rather than your line of credit.
If there’s a dispute about the amount, you have fewer means of push back, which means a rental car company could sting you for $1000’s, with no choice but to go to court to recoup if you paid via debit, whereas a credit card could be instantly disputed, with no liability until a resolution was reached. Simple solution: present a rewards earning credit card for these situations instead.
As to flight delays, lost baggage and other inevitable travel quandaries, the case for using a credit card is even more compelling.
Many premium rewards credit cards offer special perks, such as the ability to purchase up to $500 in clothing, toiletries and other necessities when a flight is delayed as little as three hours and others can replace lost luggage far better than any airline, with up to $3000 in compensation. Even the relatively low $95 a year Chase Sapphire Preferred Card provides up to $10,000 per person in travel disruption, among other policies.
Of course, none of this hyperbole even begins to take into account the fact that many of the best credit cards also offer rewards in the form of valuable credit card points, hotel points or airline miles, which can fuel and fund future travel in part or full. In most cases, debit cards don’t.
I, for one, am living and breathing proof that credit card points really can unlock luxury travel over and over again by maximizing the return on each purchase or experience.
Unlike debit cards, which typically don’t offer any reward, credit cards can bring up to 5x points for airfare purchases, 7.5x miles for certain hotels and 5x for dining, which is effectively a massive rebate on everything related to the travel experience.
Again – debit cards – almost always nada. Most rewards cards in the USA have ditched foreign transaction fees, and for those elsewhere, new fin-tech firms and solutions such as Curve, Revolut and others allow you to use a credit card abroad without the foreign transaction fees.
Basically, if your excuse for not using a credit card abroad was those pesky transaction fees, they are a thing of the past.
A common misconception with travel rewards credit cards is that they are also inherently risky or that you lose out by paying an annual fee. People regularly pass on cards with high annual fees, without considering they may actually net out, if used well.
Many of the best cards annual fees are more than accounted for in travel or spending benefits, and turning every purchase from a latte to a luxury holiday into points is crucial to earning a rebate, which unlocks the full potential of your consumer behavior.
It’s not impossible to garner $1000s in annual value from a card with a $450 annual fee, and there are great cards with no annual fee as well. Some cards even cover your primary rental car coverage, which is fantastic.
The new iteration of the Amex Gold Card – which also now comes in Rose Gold – has at least $240 in annual food and Uber credit, with a $250 annual fee, and other features which can save hundreds, if not thousands.
Like anything with buying power, credit cards come with important rules, and they should never be used to purchase anything which can’t be paid immediately or would place someone in a leveraged situation. But with that in mind, they’re almost always better for any travel purchase.
Put simply, you should use your credit card as if it were a debit card tied to your currently available funds, and if you do – you should use it for everything. Never miss an opportunity to earn points, and that includes ditching cash, wherever possible, and never minimize your chances of a refund if plans change or travel businesses go out of business, by paying with a debit card.