Credit card use drops, more people favoring debit cards

If you are using a debit card to pay for purchases, you are not alone.

More Americans are using debit cards than credit cards now. For the seventh straight month, consumers reduced their outstanding debt. In August alone, consumers cut borrowing by $12 billion.

VISA says for the first time in the company's history, debit card transactions now top credit cards.

"Within Visa USA, about over 70 percent of VISA systems done on debit cards and over half of dollar purchases are debit cards," says Stacey Pinkerd, the Global Head of Debit Products at VISA.

However, experts say many consumers do not know there are huge differences in protection for debit cards, versus credit cards. Credit card companies are bound by the fair credit law.

"If it's lost or stolen, someone uses it the wrong way, you have to settle a dispute, the law's on your side," says CNBC Personal Finance Expert Carmen Wong Ulrich. "With a debit card, you're not backed by any laws, just policies."

Those policies are set by the bank, not the company emblem like Mastercard or VISA on the card.

VISA says it works with banks to offer the same dispute protections to consumers, but banks have come under fire for the soaring overdraft fees that apply to debit transactions. Some of those fees are as high as $39 per overdraft. Recently some banks like Wells Fargo and U.S. Bank have adjusted that policy, allowing customers to opt out of overdraft protection.

Related: US Bank to ease overdraft penalties

"Make sure you opt out," says Wong Ulrich. "If you don't opt out, sign up for text or email alerts that come to your phone or email that say your account has dropped to a certain amount so you don't overdraw."

Better yet, experts say when it comes to big purchases like electronics or holiday gift cards, use a credit card and budget to pay the bill off in a month.

Congress could take up the issue of overdraft protections. A proposed bill would require banks to give customers a choice to opt in on overdraft protection and alert them of a pending overdraft.

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