No, I’m not talking about what you carry your purchases out with.  I’m referring to how you pay for them.  Some people use their debit or credit card for every purchase and carry no cash.  Others swear by cash only.

Financial author and television personality, Gail Vaz-Oxlade likes people to set up a cash envelope system for different categories to monitor their spending habits.  In fact when I was first married, I set up our budget with this same system.

Of course, that was in the days before plastic and everything including mobile credit card processing was a farfetched dream and it worked for us, more or less.  My husband is a spender and it controlled his spending somewhat.  When we got our first debit cards I almost had a heart attack when I saw all the debit transactions on our statement.  It just didn’t seem like real spending to him.

It may seem like I’m a terribly controlling wife, but now he gets a set amount of cash and when it’s gone, well, too bad.  Everyone needs to find a system that works for them.

Pros and Cons of using Cash

People see cash as more real.  When it starts to dwindle, their attention is piqued so they tend to be more careful.

I hate to break up a large bill for a small purchase, but once I do the smaller bills slip right through my fingers.

Carrying large amounts of cash can be dangerous – it can be lost or stolen.  The envelope system doesn’t work if you keep borrowing from one category to spend in another.

Cash forces you to notice how much you are spending.

Pros and Cons of using a Credit Card

When you use your credit card for day-to-day purchases you can collect reward points or get discounts and promotions with store loyalty cards.  You don’t have to bother going to the ATM when you need to make a purchase.

On the other hand, people tend to spend more when they use plastic.  Debit card users falsely believe they can’t get into financial trouble because the money comes right out of their account, but it can ruin their budgeting unless they record every transaction.

Using credit cards raises the “cost of goods sold” by causing retailers to pay a percentage for each credit transaction, and, of course, that cost is passed on to the consumer.  It’s a bother to swipe your card for piddly little purchases.

Buy now (on credit) and pay (the minimum) later has caused a lot of debt problems.  High interest rates (if you don’t pay the balance monthly) and annual fees often offset any rewards you may earn.

So…are you safer using a credit card or using cash?

What’s your spending style?

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12 Comments

  1. PKamp3 on November 10, 2011 at 8:36 am

    My spending style? Buy everything on credit and pay off the balance. Rewards cards work well – just don’t check your rewards balance and this, “one more purchase and I’ll earn the xxx!”.

    It’s not for everyone, which is why I think cash is a good choice for people who are having problems staying in their budget.

    • Boomer on November 10, 2011 at 5:35 pm

      @PKamp3: There’s a trend to make every purchase on a credit card in order to earn some sort of rewards – air miles to groceries and everything in between – and then pay off the balance monthly.

      It can work great, but do you find you sometimes buy just a little more than planned when you use credit?

      • PKamp3 on November 10, 2011 at 9:55 pm

        Maybe – but I’ve been doing this for years so I don’t really have a control in this experiment, haha.

        I’ve got most categories covered with 5% rewards cards – it’s a decent game if you can manage it.

  2. Max on November 10, 2011 at 11:38 am

    This is so great! Money saving systems are so Important to balance the funds for individual areas of your life! If you spend 100% of funds on play, how will you be able to invest or afford personal development education? Great information!

    I have found myself balancing the use of “paper” and “plastic” because like you said “I hate to break up a large bill for a small purchase, but once I do the smaller bills slip right through my fingers.” and “You don’t have to bother going to the ATM when you need to make a purchase.”

    Your awesome!

    • Boomer on November 10, 2011 at 5:37 pm

      @Max: I always have some cash in my wallet. I rarely use debit. I pay for larger purchases with my credit card and pay the balance each month.

  3. krantcents on November 10, 2011 at 11:57 am

    I prefer using plastic because I earn miles. Using cash is inconvenient because I would have to go to the ATM too often.

    • Boomer on November 10, 2011 at 5:40 pm

      @krantcents: Those are two popular reasons for just using plastic. It seems to be coming more the trend than carrying cash.

  4. T.M @ My University Money on November 10, 2011 at 11:04 pm

    I’m another rewards guy that pays his balance monthly. I like it because it very easily allows me to track my spending as well.

  5. Eric J. Nisall - DollarVersity on November 11, 2011 at 7:47 am

    I’m a credit-only guy. I like the fact that it helps with budgeting, as every transactions is easily downloaded into Quicken and properly categorized automatically (after I set up the naming rules). It also makes for an easier time paying bills, as they can be set to automatically charge the card and I don’t have to worry about due dates.

    There are also the inherent security measures that credit cards provide. If cash is lost or stolen there is no measure in place to replace the lost funds. Purchases are also protected as many cards provide additional warranty coverage, price-protection guarantees, and merchant dispute resolution. Cash provides none of those benefits.

    • Boomer on November 12, 2011 at 2:15 pm

      @Eric: I’ll add purchase protection to my list of credit card pros although merchant dispute resolution, in my experience, can take a long time.

  6. Jean on November 12, 2011 at 3:42 am

    I still use cash for most purchases. The only time I use the credit card other than for online payments is at restaurants or while making big purchases like after restocking groceries for the week at the supermarket. I never use a debit card for any purpose though.

    -Jean

  7. Lickety on December 16, 2012 at 9:46 am

    I use both cash and credit. I carry a bit of cash to get me through to the next paycheque to purchase the piddly items and credit card for the larger items. My card is paid in full every month.

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