Choice between credit and debit can make a difference

Many consumers are now opting to use debit over credit, according to a report from ABC News. Of all consumers polled, 48 percent said debit has become the primary form of payment. Similarly, Visa reported that the last quarter of 2008 saw total dollar volume spent on debit cards surpass the amount of credit card debt consumers took on for the first time ever, and that trend has continued into the third quarter of this year.

With the holidays coming up, experts predict that consumers will use their debit cards even more as they continue their attempts to reduce the amount of credit card debt they carry, the report said.

"That's an important advantage of debit," Josh Frank, senior researcher with the Center for Responsible Lending, told the news source. "A lot of people don't use their credit card because they don't want to get over their head into debt, which is a good concern. With debit, you're spending money that you have, if you haven't opted into an overdraft program."

However, using a debit card to make a purchase presents its own challenges, ABC News noted. While banks are now prevented from allowing consumers to overdraw their accounts, consumers can still opt into such programs, and therefore may face hefty overdraft fees if they extend their spending too far.

The report also said that credit cards often carry better fraud protection plans than their debit counterparts. In addition, some lenders may even help a consumer deal with a stubborn merchant who refuses to refund an unsatisfactory purchase.

Credit cards also offer rewards programs that may give a consumer airline mileage or cash back for dollar of credit card debt they take on, the report said. For those consumers who have a long history of managing their finances properly, many experts say these programs can be a strong incentive to spend on a credit card when the holiday season arrives.

Consumers may be reassured in knowing that the Credit Card Accountability, Responsibility and Disclosure Act, as well as the financial reform bill, have added numerous protections on both types of accounts that could help them handle their finances and credit card debt better.