Cash, Credit, or Debit

In preparation for the release of the audiobook version of Live Well, Grow Wealth, I'll be sharing excerpts each week on this blog. 

This excerpt is from Chapter One, Live Within Your Means, and it discusses the pros and cons of various forms of payment. 

Many financial consultants will tell you to cut up your credit cards, or to never apply for credit at all. I won't tell you that. I love my three credit cards; they are a secure alternative to carrying a lot of cash. I use them for groceries, gasoline, and even some utilities; I pay by credit card whenever one is accepted without an additional charge for the convenience. The secret is to remit the balance in full every month, on time, so you never pay one penny of interest. For me, a credit card is a convenient form of payment, and a side benefit is that I get to use other people's money for a short while. Additionally, many credit cards offer rewards like frequent flyer mileage, gift cards, or even cash back. If you think of a credit card as a magic plastic wand that enables you to buy something you cannot otherwise afford, perhaps cutting yours up is a good idea.

Those who tell you to cut up your credit cards may counsel you to operate on a cash-only basis, and this works well for some people. The premise is simple: when you run out of cash, you can't spend any more. Personally, I find it harder to keep track of expenditures when I pay in cash. Withdraw twenty dollars from the ATM, and it disappears. At the end of the month, it's just something that went into the "miscellaneous" column. If you are a cash-only person trying to get a handle on where your money is going, be diligent about writing down every expenditure. When you use credit cards, debit cards, and/or checks, you can retrace your steps and account for every outlay. Keep the credit card receipts and make use of your check register so you can reconcile them with your statements each month.

If you pay mainly with cash, keep coins working for you. Many people cast their small change into a drawer, the bottom of a purse, or the floor of a car and do not even bother to pick it up when they drop it. I'm not advocating stopping at the bottom of an escalator or jumping into traffic to retrieve a quarter. But I find it odd that so few people take the time to pick up a "lucky" penny—or nickel or dime. That penny you found on the sidewalk yesterday may come in handy today when your total is $5.01 and it keeps you from breaking a larger bill. The smaller the monetary denominations, the less they matter, and the faster they go. Check your coin purse to see if you can produce exact change for your purchase; cashiers will appreciate it (especially if you can pull it out quickly enough to avoid annoying the customers in line behind you). The longer you hold onto those larger bills, the richer you’ll feel.

Some people save all their change and take it to the bank once they fill a mason jar, treating the proceeds like a windfall. My father saved his change for about thirty years. I collected coins as a child, and he continued the hobby long after I lost interest. He figured the coins would appreciate in value, which was true for the ones issued before the early sixties, when the U.S. mint stopped making them out of silver. When he died, I inherited his collection: a steamer trunk full of jars and jars of pennies, nickels, dimes, quarters, half dollars, and silver dollars. Most of the coins only fetched face value and were more trouble than they were worth to transport and cash in. Some banks even wanted to charge a fee to accept them! Unless you come across a rare issue or a coin older than 1964, spend your change.

Some people claim the best solution is a debit card. It offers the convenience of a credit card, and it’s easier than writing a check. You don’t have to carry a lot of cash, yet you are unable to spend more than you have in your checking account. While you don’t have the same protection as with a credit card, some merchants offer the option to select "credit" instead of "debit" at the time of transaction, which adds some fraud protection. But because the funds are paid immediately from your checking account, it's harder to dispute an incorrect charge, and your financial life can be crippled if a thief steals your card number and PIN, and then wipes out your account (or even overdraws it, incurring additional charges). If you write checks and also use a debit card, be sure to document debit transactions on your check register and keep track of your balance to avoid getting hit with overdraft fees. Also, be vigilant with your statements to ensure there is no unauthorized or forgotten activity.

To learn more, read Live Well, Grow Wealth by Sharon Marchisello.

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