Of course people still write checks, do electronic fund transfers, use mobile payment services (Apple Pay, etc.) and even use digital currencies (Bitcoin, etc.), but the big three when it comes to making payments are cash, credit cards and debit cards. In 2019, debit cards were used the most (30%), followed by cash (26%) and credit cards coming in third (24%). This month we’ll take a look at which form of payment might be best for you.
Debit Cards
A debit card is a payment card that can be used in place of cash to make purchases. Like cash, you must have the money now in order to make a purchase. The money for the purchase must be in the cardholder’s bank account at the time of a purchase and is immediately transferred directly from that account to the merchant’s account to pay for the purchase.
The main advantage of debit cards (other than you don’t have to carry cash) is that they can help you control your spending since you can’t spend more than you have in your bank account. In addition, merchants may offer cash back to customers, so that a customer can withdraw cash along with their purchase. (For example, asking the grocery store to give you $50 in cash when you buy your food.) There are usually daily limits on the amount of cash that can be withdrawn.
The main disadvantage of debit cards is that they offer less protection than credit cards in case of fraudulent activity.
Cash
Probably all of us have experience using cash. It’s still quite popular. Maybe its top benefit is that it’s accepted everywhere. (In fact, even if you prefer using a card, it’s good to always pack some cash for those merchants and restaurants who only accept cash.) Like debit cards, it can also be useful in controlling your spending. (Back in the day, some people used to budget by putting some money in an envelope labeled rent, another labeled groceries and so forth.)
Credit Cards
A credit card represents a loan (actually a revolving line of credit) from the issuing institution that can be used to make purchases now which are paid for later. If you pay what you owe in full at the end of each statement period, credit cards are a lot like cash – they don’t cost you anything extra.
Credit cards have a number of advantages. A very significant one is that the government limits your liability in case of fraud to $50 and many card issuers limit it to $0 if you report problems promptly. Unlike debit cards, credit cards help you build your credit history which affects your credit score which affects your loan rate when you finance a home, a car or anything else. Normally, credit card companies will help you resolve problems you have with a merchant – like faulty merchandise. With debit cards, you’re on your own. Many credit cards offer cash back, free travel and other incentives for using them. Credit cards allow you to purchase things that you don’t currently have the funds for. Interestingly, this can also be their biggest disadvantage too. Another disadvantage is their very high interest rate if you’re unable to pay your bill in full each month.
While many experts prefer credit cards, you can see that all three forms of payment are still very popular. When deciding how to pay for a particular purchase, you’ll need to consider your individual situation. If you’d like to talk more about payment options, or go over any other financial matter, we can discuss things in a no-charge, no-obligation initial meeting. Please visit our website or give us a call at 970.419.8212 to set up an in-person or virtual meeting.
This article is for informational purposes only. This website does not provide tax or investment advice, nor is it an offer or solicitation of any kind to buy or sell any investment products. Please consult your tax or investment advisor for specific advice.