Every time you make a purchase, you have a decision to make – “How would you like to pay?” Some people are committed to making all of their payments in cash, while others are more comfortable using a debit or credit card. You might wonder, outside of personal preference, is there ever a “right” way to pay?
In short, there are pros and cons to each payment method. Below we’ve compiled some tips on when it might benefit you most to pay with cash, a credit card, or a debit card.
Paying with cash can be a good way to manage money and stick to a budget, especially if you have a tendency to swipe your debit or credit card without thinking.
Many people manage their cash by using the envelope system. Using this system, once you’ve created a budget and determined what categories you’ll divide your spending into each month, you withdraw the cash and divide it up into envelopes labeled with each category. Throughout the month, you only use cash out of those designated envelopes to cover your expenses. This provides you with a physical reminder of how much you’re spending and keeps you constantly aware of how much you have left to spend.
Outside of helping you stick to your budget, paying with cash can also be convenient. Once you’ve made a purchase or paid a bill, it’s done. There are no bills, such as with a credit card, to track each month.
If you’re not using a structured method such as the envelope system, it may be difficult to keep track of your cash. Someone at work may be collecting money for a group gift or your child may come home from school asking for money for a field trip. Just a couple of these unaccounted-for expenses each month can leave your budget unbalanced.
Additionally, when you pay with cash, there’s no built-in security. If someone takes your money and fails to deliver an agreed upon product or service, the cash is gone. There’s no designated service center to call to dispute the transaction or get the money back.
Using a credit card can come with many benefits, only one of which is the simple convenience of not having to carry cash or being able to pay quickly using a card linked to your phone or smart watch.
One major benefit of many cards is the rewards they may offer, such as those you can receive using our Founder’s Card. With the Founder’s Card, you can earn up to 2%* in cash rewards on every purchase, every time, without your cash rewards ever expiring. This allows you to earn back some of cost of every purchase you make or bill you pay with your card.
Credit cards also offer an added layer of security when you’re paying. If you make a payment and don’t receive the good or service you paid for or the card is used fraudulently, you can contact your card issuer and dispute the charge, helping protect you from any financial losses.
Lastly, credit cards can also help boost your credit score if you use them responsibly. Having a good credit score can increase your chances of getting approved for loans, apartments, or even jobs.
Paying with a credit card can sometimes be almost too convenient, making it easy to charge purchases or bill payments without a second thought. It’s important to remember that, just as responsible use of a credit card can help your credit, irresponsible usage can seriously harm it.
If you’re racking up debt on a credit card that you can’t pay off in full each month, your credit could take a hit because of the higher amount owed. In addition, you’ll find yourself losing money to interest charges.
To take it one step further, if you rack up so much debt that you struggle to make your minimum payment, you could damage your credit even more if you pay late or miss a payment. Negative marks on your credit can remain for up to seven years.
In some circumstances, paying with a debit card can be a happy medium between using cash and a credit card. A debit card will pull money from the linked checking account, helping ensure that you don’t spend more money than you have. However, debit cards can be used at most places that accept credit cards, making their use just as convenient and eliminating a stop at the ATM.
Some debit cards also offer rewards. Using a PSECU debit card can earn members $0.05 or $0.10 on eligible debit card purchases of $10 or over**. Purchases qualify for $0.10 cash rewards with a checking account and one or more qualifying monthly direct deposits totaling at least $500.
Debit cards can also provide a sense of security that cash can’t, giving users a procedure for reporting them lost or stolen and disputing claims and protecting them from associated liability.
Some vendors, such as rental car companies, hotels, or gas stations, may place a hold on any card when used to make a reservation or purchase. When this is done with a credit card, it impacts your available credit, but does not take the cash out of your account. When you use a debit card for one of these purposes, the hold causes you to have access to a lower amount of cash.
Additionally, though a debit card may bear the logo of a major credit card issuer, it does not help you build credit. This means that even if you’re paying your bills on time and in full, the good behavior won’t help you secure loans or other credit products in the future.
There’s no one right answer as to the best way to pay. Fortunately, no matter what method you prefer, we’re here to help you. From thousands of convenient ATM locations to debit card rewards and two credit cards to choose from, we’re here to make your wallet work for you.
*You can earn 1.5% cash rewards on purchases. You can earn 2% cash rewards on purchases if you maintain a PSECU checking account and qualifying monthly direct deposit(s) of at least $500. See the Visa® Founder’s Card and Visa® Alumni Rewards Card Rewards Program Terms and Conditions for full details.
**You can earn $0.10 cash rewards on eligible purchases of $10 or over with a PSECU checking account and one or more qualifying monthly direct deposits totaling at least $500. You can earn $0.05 cash rewards on eligible purchases of $10 or over for accounts with a PSECU checking account. Certain restrictions may apply. See the Visa® Debit Card Rewards Program Terms and Conditions for full details.