Cash v Credit
Which one’s best to pack in your purse?
When it comes to carrying around the stuff you spend, which method do you prefer? Would you rather splash the cash or do you consider plastic to be fantastic?
Whichever way you like to buy things when you’re out and about, you should be aware of the pros and cons. That’s why we invested some time comparing the two options – and you should spend a few minutes finding out more about the benefits and drawbacks of both.
Is cash still king?
Since bartering for goods became obsolete, cash has been the preferred payment method for goods and services across the world. And it’s been doing a fine job of things since first used in Mesopotamia around 3000 BC, according to those clever folks at Wikipedia.
The thing is, modern shopping methods are in danger of making this solidly reliable payment method obsolete. Consumers are demanding faster ways of paying at outlets such as petrol stations, whilst internet shopping would be difficult, though not impossible, without a credit or debit cards. We’re not talking about posting dollars into your hard drive and sending them down your phone line; but methods like PayPal that allow you to send a recipient money direct from your bank account.
Security-wise, cash is a dumb choice, too. Once it’s gone, you can’t cancel it and get a refund. That’s it. Which makes carrying large amounts around an option most people would rather avoid.
So, is it true that king cash may be about to lose its crown as spending habits change and shopping methods get less personal?
As the old saying ‘If it isn’t broken, don’t try to mend it’, as most shoppers and retailers still trust cash above any other method. Not only does the folding stuff offer an instantly verified transaction (as long as you’re sure to hold the notes up to the sun and squint as you struggle to find the watermark), spending just cash is a failsafe way to avoid going overdrawn or shopping your way into debt; all too easy when you’re spending on a credit card.
It’s also the choice of the thrifty. According to the article ‘Cards Encourage You to Overspend’ on Soundmoneytips.com, people will spend more with a credit card compared to cash.
In fact, a Dunn & Bradstreet study found that people spend 12-18% more when using credit cards than when using cash, whilst McDonald’s found that the average transaction rose from US$4.50 to $7 when customers used plastic instead of cash.
The plastic point of view
With cards, whether credit or debit, it’s all about convenience and security.
If your card is stolen or cloned, you can cancel it immediately before the light fingered go to work and fraudulent purchases are made. What’s more, most credit card companies are getting better and better at protecting you to protect you in the event of unauthorised use.
They also make it easy to keep tabs on your spending by checking your monthly statements.
On the downside, cards – specifically those of the credit variety – come with one major drawback. Buy something on your credit card and unless you settle in full at the end of the month, you’ll end up carrying a balance that could incur interest at a rate of 15% or more of your purchase.
And the winner is…
Though we still think cash is cool, reach for the debit card and you’ll benefit from the best of both worlds. Over-the-counter transactions will be quick and convenient (even faster than paying with cash when you use contactless payment) and you’ll have the freedom to shop online or anywhere where payment by cash is impossible.
Crucially, you won’t be able to get into debt you can’t afford as a debit card will only let you spend what you have. Just make sure you also pack enough change to cover things like parking meters and bus fares and you shouldn’t go far wrong…for the next few years, anyway!
Blog post originally written for Fair Go Finance and appeared on their website in 2015.
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