Picture this: you’re standing in the supermarket checkout line, waiting to pay for your groceries. Do you reach for cash, debit, or credit? Read on for a rundown of the pros and cons of each payment method, so you can make the most informed choices about how to pay.
If you’re building a budget, it can be useful to spend on cash rather than with a card. Spending with cash makes you more aware of what money you have and where that money is going. Some people may withdraw a certain amount of money before starting a shopping trip, to ensure they don’t go over budget. Plus, when paying with cash, there’s less risk of identity theft because you aren’t sharing any personal or financial details when paying at the till.
While paying in cash means fewer opportunities for identity theft, if your money does get stolen or lost, there are few resources to recover those funds. Cash can also be less convenient that paying with a debit or credit card, as it necessitates frequent trips to the ATM to withdraw funds which may incur fees.
Paying with debit is similar to using cash, in that money spent leaves your checking account immediately—so there’s nothing to pay back at the end of the month, and no risk of unpaid bills leading to high interest payments. In addition, paying with debit can be more convenient than carrying around cash and you get a digital record of your transactions. Unlike using a credit card, merchants typically don’t charge a fee to use a debit card and debit cards usually don’t incur any kind of annual fees.
However, because funds are instantly deducted from your checking account, debit cards usually don’t offer the same fraud protection as credit cards. Another potential disadvantage of a debit card is that spending is “hidden,” making it easier to lose track of your expenditures and potentially go into overdraft if you spend more than what’s in your checking account.
When used wisely, credit cards can offer a number of benefits. Cards are convenient to carry and widely accepted, plus most cards offer full fraud protection, so you’re not on the hook for purchases if your card is stolen. Spending with a credit card—and paying off your bill—will give your credit score a big boost. And, the best credit cards offer benefits that put money back in your pocket, such as cash back rewards and bonus points for introductory period spending.
Unfortunately, credit cards can encourage spending beyond your means—and if bills aren’t paid, interest will accrue very quickly. To avoid going into debt or any negative affects on your credit score, pay off your entire credit card statement balance every month. Besides the potential for interest and debt, another disadvantage to credit cards is that some merchants charge a processing fee to pay by card. This fee is typically around 2-3%, which can add up quickly on larger purchases.