Cash or Credit: What’s the frugal decision?
The Benefits of Plastic (Debit and Credit Cards)
In this day and age, cash is becoming quite a rare thing to carry. With the ease and convenience of debit and credit cards, it isn’t uncommon for people to use them nearly exclusively for all of their spending needs. Plastic makes life simple. Just swipe and be done right? Here are some benefits . . .
- All of your expenses will be itemized for you on your monthly statement.
- Many stores offer great incentives if you use their cards! Kohl’s will send you coupons nearly monthly. All you have to do is shop in their store with their card. Target offers a card that’ll save you 5% off of your purchase every time you use it in their store.
- Some bank credit cards offer purchase protection and cash back rewards.
- No time to get to the bank? No problem… swiping solves that issue too.
The Benefits of Cash
It seems totally sensible to use plastic wherever possible doesn’t it? Could there be any benefits to carrying cash?
Actually, there are.
- Temptation! How many times have you walked into a store to get just one or two things and you walked out with much more? Store designers are very intelligent people. They have studied us consumers right down to the way our eyes shift around when we look at a display. They know just what to do to tempt us to buy that thing we didn’t even know we needed. Look at the $1 spot at Target! SO tempting isn’t. Why not, it’s just a $1. Well $1’s add up. And when you shop with plastic your cash source feels infinite. So why not pick up one more thing right?
- Using cash saves everyone transaction fees! Every time a card is swiped the bank gets paid. Sometimes both the retailer and the consumer foot the bill for that (either directly or through higher priced products). In fact, I’ve found that some smaller stores will actually give you a bit of a discount just for using cash because they want to avoid those fees. Now THAT is frugal!
- No worries about making that bill. If you pay in cash you are DONE. DONE DONE DONE. There will be no bill later in the month that comes back to bite you. No worries about late fees. No worries about overdrawing your bank account by accident.
- Using cash cuts down on identity theft. Cash doesn’t leave a trail for hackers or thieves to follow.
- Cash doesn’t cost you interest! If something unexpected happens and you don’t make your full bill this month guess what… you are going to have to pay something like 18% interest on all of those credit card charges. Back when I was in debt I realized we were losing a couple hundred dollars every month just in fees and interests. That was money totally wasted as if I just threw it all in a blazing fire. It was the biggest obstacle to getting out of debt as it often felt like we couldn’t get ahead.
- You can’t accidently overdraw your account and rack up fees. It happens! I’ll give you a great example! A friend has his mortgage payment automatically deducted from his bank account each month. One weekend his mortgage due date was actually a Sunday. He assumed the bank would pull it the next day, a Monday. He knew he had a check that would clear on Monday so it was covered. He went ahead and used his debit card all weekend for half a dozen small things like coffee and fast food. The bank pulled his mortgage payment on Friday. All weekend he was overdrawing and overdrawing. That $5 coffee cost him $40. That $7 fast food meal cost him nearly $50. It was insane! He spoke to the bank manager and was able to reverse SOME of the overdraft charges but the bank wasn’t willing to reverse them all. I wasn’t their fault after all. This man was living on the edge with his finances and plastic was only making the matter worse.
- Lastly and I think most importantly…. Spending cash HURTS! No really! It’s been scientifically proven. Your brain responds differently when you hand over cold hard cash versus plastic. Your brain responds as if it is in PAIN! In fact, those who use cash spend 12%-18% less than those who spend with plastic. Don’t believe me? Read more about it here! THIS is why all of these stores offer all of these incentive programs with their cards! They KNOW if you use their card you WILL spend more in their store. Target saves you 5% but you SPEND 12%-15% MORE than you WOULD have if you had used cash. Quite smart of them isn’t it?
Let me share with you how I discovered just how using cash REALLY does save you money. It was my WAKE UP CALL! Typically when shopping for a gift I’d set an approximate budget. Let’s say $30. But If I got something for $35 that’s close enough. And then I’d need a card and bag and such. Now I’m up to about $45! Without thinking, I’d swipe my card and I might actually even feel like I maintained my budget. I wouldn’t be thinking about the extras I bought or that the gift itself went above my goal. Close enough was close enough.
But it’s not. That is more than 30% of what I intended to spend. Walking into a store with ONLY cash means I will walk away after spending ONLY what I budgeted. All of that extra spending definitely adds up over time!
Shopping with cash only means sticking to your budget. When I grocery shop, I do my very best to calculate my total as I go. But mistakes happen. I will load the conveyor belt at the checkout in order of priority and watch the total as the checker rings me up. If I see I’m going to go over I’ll stop her and send the last items back. Cash makes me stick to my budget plan. CASH! I sincerely believe is the FRUGAL option when shopping.
Are you convinced? How do you generally budget your money — cash or credit?
This article was written by Crystal over at Living Abundantly.