The 15-minute Tip: Which To Use, Debit Or Credit Card?

NEW YORK – Off you go on your family summer road trip. Seven, 10, 14 days touring around the country, armed with your bank ATM debit card and a few credit cards. You just deposited your paycheck and the bank account is in good shape.

Feels good, right? Plenty to spend. Just move along down the highway, stop here, stop there, swipe that ATM card for everything from A to Z. No cash to be lost or stolen, no jaw-dropping bills or interest charges when you return home.

A vacation, not a care in the world, right?

Wrong. You might find yourself stranded, despite having plenty in the bank. Why? Because debit cards work differently than credit cards. There is no "balance" to manage or serve as a buffer between you and the merchant. You'd be surprised at the problems that can cause.

Problem 1: Double funds tie-up

You pull into a gas station, pick a pump and swipe your card. What happens? Turns out the bank sets aside an "approved" amount, say $50, in advance of pumping the gas. Then, when you finish the transaction, your account is charged for the actual amount. In effect, there are two charges to your account.

Problem is, the bank takes up to 48 hours to release the original $50. Travel the country and gas up twice a day, and your account may support less spending than you thought.

Problem 2: Can't dispute debits

Credit cards allow you to dispute charges. The process can be elaborate, but it works. You can't do it with debit cards, for the most part.

A friend of mine recently bought three bottles of her favorite Scotch in a Mexican airport duty-free shop. The shop didn't deliver the goods to the plane before take-off, and she went home empty-handed. She was able to successfully dispute the charges. Good thing she used a credit card.

Some companies, however, have started to offer protections similar to credit cards. Consult your card issuer. Visa, for instance, does allow you to dispute charges (should something be wrong with the purchase). If you aren't successful in disputing it, then you can take it up with the card issuer.

Problem 3: Can't rent a car

The inability to rent cars may be the best known debit-card pitfall. Rental companies can't sequester a large enough amount to cover their exposure, so they don't accept debit cards when you check a car out. You've probably seen surprised tourists (and maybe some stranded ones) stunned by the fact that a direct payment simply won't do the trick.

But if you can get over the initial hurdle, most rental firms will accept a debit card for payment when you turn the car in.

Problem 4: Theft protection

Lose your credit card to a thief, and your exposure is limited to $50. Lose your debit card to a thief, and you've got trouble. Why? Because that thief is out spending from the minute your card is gone, and your bank account is being depleted in real time.

Yes, your exposure is also limited to $50 if you inform the bank within 48 hours. But in the meantime the money is gone from your account and it might not reappear quickly.

The bank has up to 10 business days -- and up to 45 if an investigation is required -- to restore your balance. And if you take more than 48 hours to report a lost card, your liability limit is $500, not $50. Worse yet, if you fail to report a loss within 60 days of a bank statement showing the fraudulent transaction, your loss is unlimited.

Debit-card advice

Here are some rules of thumb for when to -- and when not to -- use the debit or credit card:

Use credit cards for gas, hotels and rentals. Debit cards don't work for rentals at all, and hotels and oil companies will tie up more than you've bargained for. And you'll get insurance and other special protections most debit cards don't offer. Use the debit card for food. There's no downside here. Eat it, it's gone, no disputes, and it's nice not to see the bills for all those margaritas when you return. And you probably use the ATM card for groceries while at home, too, so your payment methods are consistent. Use the credit card for gifts and souvenirs. That way you have a chance to dispute something that isn't delivered or isn't what you expected. And it's consistent with the financial logic of paying with credit for something that lasts. If a debit card is lost or stolen, call your bank immediately. Lost time could turn into big lost money.

So, have fun, see America and don't burn a hole in that debit card.

Jennifer Openshaw is the author of "The Millionaire Zone" and CEO of Openshaw's Family Financial Network. She hosts ABC Radio's Winning Advice and serves as an adviser to some of America's top corporations. You can reach her at jopenshaw@themillionairezone.com.

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