Summer vacation season is almost upon us. But before you throw your bathing suits in a duffel bag and drop the dog off at a kennel, take time to read this advice about using your debit card while enjoying your well-deserved getaway. Make the wrong move when it comes time to pull out the plastic, and you could wind up ruining your vacation faster than a week of rain showers.
While it's commonplace to use debit cards for many purchases -- especially while traveling, when carrying a lot of cash might be unwise - there are a few types of transactions for which you should elect to use a credit card instead. Booking any kind of a reservation for your summer vacation, such as for a hotel room or rental car, should not be done with a debit card. Why? Read this average American's cautionary tale and you'll find out.
A few years ago, New Jersey resident Gary Frisch decided to enjoy what he thought would be a cheap getaway. A resort in nearby Atlantic City had sent him dan offer for a free room for a night, so he thought, "Why not?" He was required to provide a credit card for incidentals as well as the tax on the hotel room. Since he didn't plan to raid the minibar and knew that the room tax was less than $10, Frisch had no qualms about giving the booking agent his debit card number. To his surprise, the resort slapped a $200 hold on his card.
What's worse, they didn't tell him, so he didn't find out his funds were unavailable until he went to use the card and had it declined. "My wife and I were pretty much living paycheck to paycheck when this happened," he says. A sudden loss of $200 was an alarming development.
When Frisch contacted the hotel, he found out that the hold wouldn't be released for three business days. Factoring in the upcoming weekend, Frisch realized he'd be without his $200 for five days -- far too long for his monetary needs. He immediately contacted the hotel, but getting the hold resolved was a headache, he tells WalletPop.
"I had to call the hotel and cajole a desk supervisor to get the hold removed, and they had to send a fax to my bank to do so," he says. Adding insult to injury, his bank slapped him with a penalty fee for not having the required minimum in his account. All in all, Frisch says, it was too high a price to pay for a "free" room. Now he keeps a credit card just to reserve hotel rooms when he travels, then pays with his debit card upon checkout.
"At least when they put a hold on your credit card account, it's invisible to you and doesn't affect you unless it puts you over your credit limit," Frisch points out (very sensibly, we might add).
Why do hotels do this? To find out, WalletPop spoke with a hotelier for a peek behind the curtain. "From a hotelier's perspective, debit cards are a double-edged sword," Jim Engel, general manager for the Frankenmuth Bavarian Inn Lodge in Frankenmuth, Mich., told WalletPop. "They're good for all retailers from the sense of lower merchant fees assessed on us, especially if swiped with a PIN. The bad side from a hotel perspective is when we require an advance deposit and even ask the booking guest if this is a debit or credit card. They'll often be confused about which it is or not worry about the inquiry. Then we charge the advance deposit, which we told them we would do, and it puts them in an overdraft position."
The result, Engel says, is usually an unhappy customer. He adds that his staff has learned to work overtime to directly contact banks and get the charges reversed as quickly as possible.
"It's better to use a credit card in that type of situation than to have any portion of your available funds blocked," advises Linda Sherry, director of national priorities for Consumer Action.
Using a credit card instead of a debit card keeps your money from getting locked up and being unavailable to you if a hotel or rental car company puts a hold on it. If you don't have a credit card, make sure you have a very large balance in the checking account connected to that debit card, because those hold amounts can give a reasonable person sticker shock.
"These can be remarkably high holds," Sherry says, recalling one time she rented a car and was surprised to discover that the company put a $1,300 hold on her card. Be sure to ask how much a hold is going to be, even if you're using a credit card, since you don't want to inadvertently go over your credit limit.
So go out there, take pictures and have fun this summer, but don't make your summer vacation memorable because of a debit card mistake that costs you big bucks.
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