More people are using a debit card to pay for hotel rooms than ever before.  There are many reasons people use debit cards.  However, I recommend using credit cards instead of debit cards.

Debit cards have become much more popular.  Many people pay with debit cards instead of credit cards as a way to avoid spending more money than they have.

Personal Finance Guru Dave Ramsey is one of the biggest advocates of using a debit card instead of a credit card.  If you have problems sticking to a budget then Dave's advice is pretty good.  However, I personally disagree with Dave on this issue.

The Problem with Debit Cards

The virtue of debits cards – you can't spend money you don't have – is also the problem with debit cards.  You debit card is tied directly to your checking account and that can be a problem.

When you check into a hotel you are asked/required to put a credit card or debit card on file for incidental expenses like phone calls and in room movies.

Most people don't realize that the hotel then puts a hold on their account.  When you use a debit card, the hotel locks a portion of your checking account balance until the time that you check out and settle your bill, possibly even after.

This can be a problem when you need access to this money.  USA Today recently interviewed people who've had problems with hotels and debit cards.

After saving for a San Francisco vacation, Manhattanite Lauren Hopkins checked into the Oakland Marriott City Center in August and was asked for a card to cover incidentals she might incur, such as meals, Internet connection or minibar snacks.

Hopkins, 23, who doesn't use a credit card to avoid overspending, thought she had more than $600 in her account until her debit card was refused at a restaurant that night. It was over the limit, she says, because the hotel mistakenly billed her again for two nights' lodging even though she had prepaid for the room through an online travel agency, plus held another $300 for possible incidentals without her knowledge. Because her card is tied to her checking account, she was broke.

And consider the experience of Scott Huelskamp, editor of a trade publication for rehabilitation professionals. He checked into The Red Rock Casino Resort Spa outside Las Vegas for a conference and was asked for a card to cover what he calls "the dreaded incidentals" he wasn't going to use. He pulled out a debit card and later discovered that the hotel was holding $150 for each of the two nights he was there.

Back home in Wayne, Pa., his wife tried to use their account, leading to overdraft fees. Although the $300 was credited back, it took a few days.

When I used to travel for business, some of my co-workers didn't have credit cards.  We had to book the hotel with our own credit card and then the company would reimburse us.  However, some of the people who used debit cards would be surprised later when they checked their balance and discovered they didn't have enough money to pay for their meals, etc because of the hotel hold.

Debit Cards Work Just Like Credit Cards

Essentially there is no difference between credit cards and debit cards for most uses.  Debit cards are usually issued by a major credit card provider (Visa or MasterCard).  The transactions are processed through the credit card network.

The only major difference is where the money comes from.  You have more protection with credit cards.  You're only billed once a month and credit card companies go out of their way to ensure you don't have problems.

With a debit card, you enjoy many of the same protections, except that the money comes right out of your checking account.  If the merchant makes an error or in the cases above, puts a hold on your money, your account may be overdrawn.  Overdrafts are expensive, much more expensive than credit card finance charges.

As a former frequent business traveler here is my advice:

  • If you're traveling for work, push for your own company credit card.  Why should you shoulder the burden when the company is getting the benefit?  It never hurts to ask.
    You may miss out on the hotel reward points, but I never had a chance to use mine anyway, so it might not matter.
  • Always use a credit card.  Dave Ramsey won't like it, but you'll save yourself some hassle.
  • Ask when you will be billed.  When you make the reservation, ask the representative when you will be billed.  Most of the time hotels won't bill you until you check out, however some hotels will charge you right away.
  • When you check in, ask the clerk what the hotel policy is on credit card/debit card holds.  If they can't tell you, ask to speak to the manager, you don't want some 20 year old messing up your finances.
  • Talk to your bank if your really need the hold released.  Banks may have varying policies for holds placed on accounts.  Neither Visa nor MasterCard have a blanket policy on this.  So if you have a Visa through Wells Fargo, for example, contact the Wells Fargo customer service number on the back of your card.  Your bank may be able to help.
  • Keep all of your receipts.  This should be obvious.  Even after you've turned in your expense reimbursement, keep a copy in a folder in your desk.  You never know when you'll need a receipt.  Even after you've been reimbursed you'll want to keep the receipts on file for at least a year.
  • Pay off your credit card bill every month.  If you're the type to run chronically close to your limit, you need to get your finances under control.  You shouldn't be traveling anyway unless it's for work.  You need to be at work, making money to pay off your credit card debt.
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