With months to go before the bulk of new credit-card reforms are in place, more consumers are rebelling against rate hikes and interest rate cuts by switching to debit cards.

Debit cards now account for 58% of card transactions (traditional credit cards make up the remainder), according to data aggregated by the Nilson Report, a newsletter that tracks the payment industry. Next year, shoppers could spend roughly $40 billion via debit cards, according to Nilson data.

The switch from credit to debit is just fine with banks. Issuers rake in the same income from merchants for signed debit card purchases as they do for those made with a credit card, and they can also pile on the overdraft fees if you don t carefully manage your account.

In fact, many banks are encouraging debit card use, dangling debit rewards even as they scale back on credit card programs. For example, Chase (JPM) is offering enough rewards points for a $10 gift card to accountholders who enroll their debit card in the free Chase Extras program by Sept. 30. Citibank (C) will deposit $10 in your checking account when you sign for $250 in purchases on a debit card before Sept. 15.

Consumers are used to these reward programs, and they almost expect it [in a debit card], says Julie Bohn, a spokeswoman for First Data, a payment processor. If they re going to make a switch in banks, they will look for that. An April study conducted by First Data found that 45% of consumers have a rewards-earning debit card, up from 34% last year.

Trading credit for debit is an effective way to manage tight finances during the recession. But don t cut up your old card just yet. There are still times when a credit card is the superior choice, says Linda Sherry, a spokeswoman for Consumer Action, a finance-focused consumer advocacy group.

Watch out for these three pitfalls of debit cards:

Overdraft Fees

Banks stand to collect $38.5 billion in overdraft fees this year, according to economic research firm Moebs Services. If you re now using your debit card for everything, the chances of an overdraft occurring increase, Sherry says. Merchants may put temporary holds on your cash to ensure the charge goes through tying up, say, $75 for 24 to 48 hours when you buy $20 of gas. Banks themselves also use a host of controversial practices that can increase even a diligent consumer s chances of overdrawing -- for example, reordering daily transactions so that purchases clear in order from largest to smallest with any deposits processed last. And there s rarely a cap on the overdrafts you can trigger.

Limit its effect: Set up your own overdraft protection instead of allowing the bank to extend you courtesy overdrafts, Sherry says. That could be a line of credit or automatic transfers from a savings account. Most banks charge just $5 to $10 annually for such protection. You can also ask that the debit overdraw on your account be set to zero so that transactions that would send your balance into the red are declined.

Lackluster Rewards

If you re already paying off your credit card balance in full each month, switching to debit will cost you big in rewards earned. When you compare apples to apples, debit rewards are still very watered down, says Curtis Arnold, the founder of card comparison site CardRatings.com. You re not going to find a 5% bonus on some categories or a 2% cash-back rate like you might with a credit card. Most debit cards offer far less than the credit standard of one point per dollar spent. For example, Wachovia offers just one point per $4 spent.

Limit its effect: Trade your PIN for a pen. Chase and Wells Fargo (WFC), among other issuers, offer rewards only for signature transactions. You might also look for a bank that lets you combine rewards across several accounts. Citibank s Thank You Network offers up to 800 points per month for using basic banking products like checking and direct deposit, which run into the same reward account as your debit and credit points.

Poor Fraud Protection

Under the Fair Credit Billing Act, credit card holders have the right to dispute billing errors, including fraudulent charges, charges of the wrong amount and charges for items not delivered as agreed. Federal law also limits your liability for fraudulent credit card charges to $50, although most issuers waive that. In both cases, debit cards aren t covered, Arnold says. You re liable for $50 only if you notify the bank within two business days. Spot it within 60 days and you could be on the hook for up to $500. After that, you could lose the full amount. Even if the bank does step in, there s a hassle factor there, he says. You ll have that much less in your account in the days or weeks it takes to sort the situation out.

Limit its effect: Stick to a credit card for online purchases, or use an intermediary like PayPal.com or eBillMe.com that doesn t require giving out your debit card number to an unknown electronic retailer, Sherry says. Check your account daily to ensure that no unusual transactions slip by.