The most shocking thing to me about the recent Target data breach was not that it happened. Although the scope of the Target breach is extraordinary, I am always aware of the risks of using credit cards. I used to manage a Payment Card Industry Data Security Standard (PCI DSS) compliance program. I understand the complexities of protecting credit card data. The most shocking realization for me following the Target data breach was that a lot of cards impacted were debit cards not credit cards.
The prevalent use of debit cards became apparent when Chase Bank chose to impose strong limits on debit cards impacted by the Target breach. People were annoyed to have their limits cut right before Christmas. People I know were among the annoyed. I was annoyed too, but for an entirely different reason.
Although I'm not typically a big bank apologist I was annoyed that people didn't recognize that Chase was protecting them (and, yes, protecting the bank's interests too). Those people who used their debit cards for every day shopping put their entire bank balances at risk with each transaction. If breached data about those debit cards were exploited the owners of those cards could have their bank accounts drained. Sure, they'd probably get the money back eventually after a fraud investigation, but for the weeks or more of that investigation checks could bounce and bills might not be able to be paid.
What's more inconvenient: having a more stringent daily spending limit while still having actual money in the bank or not being able to pay your rent/mortgage because all your money disappeared?
If people learn one thing from the Target data breach I hope it is that they shouldn't use debit cards for shopping, either online or in person. Credit card have stronger legal protections about fraud and are a buffer between potential theft and your bank accounts.
I know that a lot of people equate credit cards with credit card debt, largely because many people are carrying credit card debt, but here is a secret:
You can have a credit card without accumulating credit card debt.
Crazy! But true!
My mother taught me two important lessons about finance. First was to "pay yourself first" meaning that I should save a bit from each paycheck before spending anything. The second thing she told me was to pay off my credit card bill every month. In my 22 years of using credit cards I've carried a balance longer than a month for fewer than a dozen times. I don't have credit card debt, but I am indebted to my mom for teaching me so well.
If you haven't been instilled with such good financial guidance and fear you can't keep credit card spending within your monthly means there are still safer spending options than a debit card:
- Ask to have your credit card limit lowered to match your budget.
- Use a prepaid debit card. If your prepaid card is breached only the money loaded at that time is at risk.
One other argument against credit cards is that they hurt small businesses. It is true that merchants must pay fees for credit card purchases. Since they cannot charge customers extra for using a credit card merchants make less off of credit card transactions, which can make a significant impact to small businesses in particular. However, merchants also pay fees for debit card transactions. Although the debit card fees tend to be less than credit card fees if you aren't using credit cards because you want to help maximize the profits of local businesses you will help them most by using cash.
For tips on how to protect your personal data online see my list of information security basics.
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