One Money Design

There are a lot of opinions on whether to use credit, debit, cash or a combination of the three as payment options.   Many insist on cash or debit cards only.  While others don’t see any issues with including credit cards as another payment option if paid off at the end of each month. 

Personally, I think we have to find the approach that works for each of us within the boundaries of managing money wisely and making sure we do not accumulate debt. 

For example, are you more likely to spend carelessly with a credit card?  If so, using a credit card for your primary mode of payment probably isn’t a good option.  You have to recognize your own personality traits and habits in the situation.

Many of us have found our approach through trial and error.  However, I think one can be a little more thoughtful in considering whether or not to use a credit card or rely strictly on debt or cash. 

Here are some advantages and disavantages of each of the options to consider before choosing or ruling any of the options out. 

Advantages of cash, credit, or debt

• Credit cards can be a back up plan for emergency situations while you’re building up your emergency savings account.  Although, you don’t want to be in this situation long.
• Credit card companies provide reward programs like air miles which can be beneficial.  However, the programs are designed to increase your spending.
• Credit and debt cards provide conveniences in that you don’t have to go to the bank or ATM each month to withdrawal money.
• Using cash requires less bank transactions to reconcile.
• Credit and debit provide some insurance associated with transactions if they result from theft.
• Cash is king when it comes to getting discounts.  Just think about the leverage you have when buying large ticket items such as appliances, TVs and cars.
• Carrying cash makes it easy to help someone else who may be in need of money on the street.
• It’s better to teach children money management principles with cash.
• Credit and debit transactions can be easily tracked through your online bank account or credit card account which will typically download to personal finance software.

Disadvantages of cash, credit, or debit

• Some say it’s easier to spend more with credit because you’re not thinking about how much money you have in your account.  The same could hold true for debit cards, if you don’t watch your account balance regularly. 
• Some reward cards or credit cards require a yearly fee.
• If you try to watch your cash flow by spending category or subcategory (for the detail freaks) you’ll have to track spending manually at the point of purchase for cash transactions.  Note:  this might also be considered an advantage depending on your taste.
• When you pay in cash you get change back at the register.  What do you do with all that change?
• Carrying a lot of cash could be dangerous given crime. 
• If you shop or purchase online you’ll have to use a debit or credit card to make the purchase.  Some websites, like DaveRamsey.com don’t allow the use of credit cards.
• Most rentals or leases require providing a credit card to cover loss of the rental or other incidental expenses.
• Carrying a credit card or debit card can result in painful issues to clean up if the card is stolen.
• Credit and Debit cards don’t typically work for valet tips.
• Some stores require a minimum purchase amount because of fees that have to be paid to credit card companies.  Unless you want to purchase more items, you have to pay for your bubble gum with cash.

While I do mention everyone has to find what works best for them; I say this in caution.  I don’t think it’s wise for a person with credit card debt to use a credit card for monthly expenses.  I would rather see the person pay off their debt and then work on paying off a credit card each month if they choose to use one.

I personally use a credit card as a form of payment from time to time out of convenience and the associated rewards, but do pay it off each month.  I think cash, credit and debit can all be used for purchases.  The foundation of managing money wisely needs to exist first and then the form of payment can really be anything you choose.

I’m sure I’m far from considering every advantage or disadvantage with each payment option.  

What form of payment works best for you and can you think of other things to consider before deciding?

Images by stopnlook and thetruthabout.

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• Should You Cosign a Loan or a Credit Card?
• No Minimum Credit or Debt Card Transactions
• Credit Card Balance Transfer Offers – Beware!