Debit cards have been around for more than 30 years, but in 2009, the use of debit cards surpassed credit card use for the first time ever, according to a report released early this month by Javelin Strategy & Research. But while reducing our reliance on credit is undoubtedly a good thing, using a debit card presents more risk than swiping your credit card. Read on to find out how. (For background reading, see Credit, Debit and Charge: Sizing Up The Cards In Your Wallet.)

IN PICTURES: 6 Major Credit Card Mistakes

1. Theft
Unlike with a credit card, if a thief is able to get a hold of your debit card and PIN, he or she will be spending your money, not the bank's. Plus, according to the Federal Reserve, if you don't report the loss within two business days, you may have to foot the bill for up to $500 of the thief's spending spree. If you fail to report the problem for more than 60 days and you could end up paying for the whole thing - not to mention the possibility of overdraft fees.

If the theft is reported in a timely way, your bank will often reimburse the funds, but getting your money back won't be instant, which could mean bounced checks in the interim. (Find out how to protect yourself from overdrafts in When Good People Write Bad Checks.)

2. Blocking
Blocks, or holds, on your debit card account occur when you agree to pay for something before the transaction actually occurs. This often happens when you pay for gas at the pump with your debit card. Because the machine has no idea how much gas you will put in, it may put a hold on your card of up to $100 to ensure that you have the funds available before giving you the fuel. The problem is, even if you only buy $25 worth of gas, that hold could stay on your card for a couple of days, leaving you unable to access that $75.

3. Less Leverage
Although debit cards can often be used much like a credit card to purchase merchandise online, they don't offer the same perks. For example, if you buy an iPod on eBay, only to find it's a cheap imitation when it arrives and the vendor who sold it to you has vanished, you may be able to take up the cause with your credit card company. In fact, federal law stipulates that you don't have to pay the bill until the dispute is settle. Because using a debit card is like using cash, even if what you get isn't what you agreed to pay for, you may not be able to get your money back. (For more insight on the benefits of using a credit card, see Credit Card Perks You Never Knew You Had.)

4. Fee for All
Although debit cards are convenient for banks and their patrons, banks still charge fees - a lot of fees. Depending on your bank and the account you choose, you may be charged for the number of times you swipe your card in a month, be subject to fees if you withdraw cash at a machine other than that of your own bank, and pay overdraft charges if you spend all your cash.

Plus, as a result of credit and debit card reforms passed under the Dodd-Frank Financial Reform Act, cardholders could end up paying higher prices for merchandise - or even pay a debit card fee. As it stands now, merchants pay 7-10 cents on each debit card transaction they make to the bank that issued the customer's card. That's much less than they pay for credit card transactions, but because the Federal Reserve wants to cut these fees down, card issuers may go to consumers to make up the difference. (This and other fees can really cut into your disposable income. Read more in Everyday Fees and How To Avoid Them.)

In Pictures: 7 Tips To Bounce Back From A Credit Score Disaster

5. Not Accepted
Although credit cards are widely accepted around the world, there are some situations where a debit card just won't cut it. Car rental companies, for example, will often require that you use a credit card. Although you may be able to pay for your car with debit, many companies prefer that you reserve with credit because of the added security this provides for the company. The same may also be true for hotels. Plus, debit cards may not always work in other countries, although this connectivity is improving very quickly. (For more on travel and payment issues, read Travel Smart By Planning How You'll Pay.)

6. No Credit
While using a credit card is a way to rack up debt, it's also a way to build credit. And, while you may not need to rely on debt to pay for gas and groceries, you are likely to need a loan for bigger purchases, such as a car or home. Unfortunately, using a credit card regularly is one of the simplest ways to build a solid credit history so that you can present yourself as an attractive borrower when you go to apply for a bigger loan. If you use your debit card, you won't get this benefit.

Debit or Credit?
Choosing between debit and credit is a bit of a catch-22. While credit cards can encourage consumers to spend money they haven't yet earned - racking up interest charges and debt in the process - they still offer a lot of security features that debit cards lack. Many debit card issuers are moving toward improving the security of these cards, such as through the recent introduction of microchip technology in some cards; in the meantime, it's up to consumers to understand that debit and credit are not the same, and to be conscientious about which card to use.

For the latest financial news, check out Water Cooler Finance: The End Of The Recession.

Related Articles
  1. Stock Analysis

    Best Stocks to Buy for Around $1 (NXTD, MBII)

    Watch for strong technical indicators and other positive information when considering the purchase of any stock trading in the $1 range.
  2. Credit & Loans

    10 Reasons To Use Your Credit Card

    There are several benefits to paying with credit instead of debit, if you use a credit card responsibly.
  3. Credit & Loans

    5 Extreme Ways To Raise Your Credit Score

    Desperate to rebuild your credit score because you can’t obtain a loan with a decent interest rate? Here are some extreme options to try.
  4. Personal Finance

    The Top 5 Personal Finance Experts to Follow in 2016

    Here is a look at five money and investing experts who can help you reach your financial goals for 2016.
  5. Economics

    What is a Trade Credit?

    Trade credit means that a customer purchases goods from a seller who allows the purchaser to pay for those goods at a later time.
  6. Investing

    Amazon Financing Now in the U.K.: Is America Next?

    Amazon has unveiled a great credit product in the U.K. Will America be the next country to have access to this financing option?
  7. Credit & Loans

    Why You Should Use Your Credit Card For Purchases

    Responsible credit card users who always pay off their monthly balances should use their cards to buy everything.
  8. Credit & Loans

    The Fed's Interest Rate Rise & Your Credit Cards

    The U.S. Federal Reserve recently raised the lending rate from 0% to 0.25% – the first time since 2006. How does that affect your credit card payments?
  9. Investing News

    Warren Buffett: Be Fearful When Others are Greedy

    It is prudent for the investor to understand when the party has gone on long enough and the clock is about to strike midnight. Be fearful when others are greedy.
  10. Savings

    Building an Emergency Fund

    Do you have enough savings to cover the costs of unforeseen crises? We show you how to plan ahead.
  1. How can you pay your Walmart credit card?

    Holders of Walmart credit cards can make payments on their balances due by mail, online or at Walmart and Sam's Club stores. ... Read Full Answer >>
  2. Does Netspend accept wire transfers?

    NetSpend accepts some types of wire transfers to add money to the prepaid debit cards it issues to its customers. There are ... Read Full Answer >>
  3. Is Apple Pay safe and free?

    Apple Pay is a mobile payment system created by Apple to reduce the number of times shoppers and buyers have to pay for goods ... Read Full Answer >>
  4. Does Netspend report to credit bureaus?

    NetSpend does not report to credit bureaus in any capacity. NetSpend is a prepaid debit card program that allows cardholders ... Read Full Answer >>
  5. Where can you use a Walmart MoneyCard?

    You can use a Walmart MoneyCard anywhere Visa Debit or Debit MasterCard are accepted. In addition, the Walmart MoneyCard ... Read Full Answer >>
  6. Can you use your Walmart credit card at Sam's Club?

    Consumers can use their Walmart credit cards to shop at Sam's Club. However, they cannot use their Walmart credit cards when ... Read Full Answer >>
Hot Definitions
  1. Harry Potter Stock Index

    A collection of stocks from companies related to the "Harry Potter" series franchise. Created by StockPickr, this index seeks ...
  2. Liquidation Margin

    Liquidation margin refers to the value of all of the equity positions in a margin account. If an investor or trader holds ...
  3. Black Swan

    An event or occurrence that deviates beyond what is normally expected of a situation and that would be extremely difficult ...
  4. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  5. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
Trading Center