The Yin and Yang of Currency: Cash Versus Credit

The debate rages on whether to pay for products using paper or plastic. Learning to speak the language of money is a feat in itself so when you add in terms like ‘credit’ and ‘debit’ the meanings can get muddled.  Let’s take a look at the pros and cons of using cash versus plastic and the differences between credit and debit.

Fork over the Bucks

For most of us, cash was our first currency of value. Our parents didn’t give us an allowance on “credit” so cash is a familiar and favorable choice. There are a handful of reasons why you should pay for items using cash:

  • Credit card companies may stake a claim on the slogan “it’s accepted everywhere”, but cash was the original proprietor of that motto and it still is. No one will turn down cash.
  • Easy to keep track. You can see, feel, and touch how many bucks are in your wallet. No guessing or research necessary.
  • It’s impossible to spend more than you have. Once you run out of cash, there’s no going into debt (assuming you don’t have credit cards on hand).
  • Tend to spend less. People who use cash as their primary currency tend to spend less, according to some researchers. It’s harder to part with a tangible object (dollar bills) than a virtual number.

The Downside of Dollars

There are a few disadvantages to using cash.

  • Risk of theft—As a victim of theft, I know how hard it is to lose cash. You can’t insure cash and once it’s gone it’s almost impossible to track. Avoid keeping large sums of cash on your person or in your house.
  • It’s unmanageable at times. Having to count out dollars and coins at the checkout counter can take hold up the line and take up valuable time. One quick swipe with a card is a lot easier than managing bills.

Credit or Debit–What’s the difference?

‘Debit’ means you are taking money directly out of your account (usually a Checking account). The purchase is processed through an electronic funds transfer like STAR or NYCE and the deduction will automatically appear on your account. There are no interest rates to worry about when you opt for debit because it’s your money, not a line of credit.  Also, debit cards are relatively easy to acquire compared to credit cards.

‘Credit’ means you are using a predetermined line (consider it a loan) that you are expected to pay back. Credit cards accrue interest until you pay them off which means that your purchases may cost you more than you realize.

Advantages of Plastic

There’s a reason why credit cards are so popular. They’re incredibly convenient for a few reasons:

  • In case of emergencies, reach for the card. You might not always have cash on hand to cover last minute expenses, so having a credit card can get you.
  • Build up your credit. Banks and other institutions look at your history of credit when you apply for large loans like mortgages, or car financing. Paying bills on time will make you look like a better candidate for loans in the future.
  • Security. If you’re card gets stolen, you can immediately freeze the account and prevent thieves from getting a hold of your money. You can also track purchases through your credit card company.

The Drawbacks of Credit Cards

  • When used irresponsibly, credit cards can be your worst nightmare and lead to having to seek help from organizations. Paying only the minimum monthly balance can cause serious turmoil by causing you to fall behind in your payments and owe more than you should.
  • Facilitates overindulgence by allowing you to spend more than you have. It’s a lot more tempting to buy expensive items when you know you don’t have to pay for them right away.

With all these options available, it’s imperative to know the facts before you spend. Whichever method you chose, make sure it’s appropriate for your lifestyle, budget, and income level. Personally, I prefer credit cards because they are convenient but I make sure to pay them off in full at the end of each month. What’s your favorite?

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This article was submitted by a guest blogger.  Guest blogging provides an avenue to share a variety of different points of view with a broad audience.  It is a good way to share cumulative knowledge as well as introducing readers to a new author.  Learn more about how to become a contributor for Riches Corner.

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