It used to be a question asked at the grocery store, but now it’s a question that you may want to ask of your finances, too. Paying with paper (cash) or plastic (debit or credit) has its advantages and drawbacks. To determine which is right for you, consider.
Savings. There are studies suggesting that people spend less when they pay with cash, compared to debit or credit. However, there are some great new debit card options which allow you to round up your purchases and put the difference in a savings account, so over the course of a month you can painlessly make contributions to your emergency fund.
Control. If you carry cash and pay only with cash, you have a built-in control mechanism – when the cash runs out, you have to stop spending. Plastic lets you keep spending, but you can easily keep track of how much you spend and where the cash goes through online banking.
Benefits. Plastic comes with some benefits. If you pay with credit cards, for example, you may be able to get additional warranties on your purchases as well as built-in protection in case you get taken for a ride by a retailer. Many cards allow you to collect points for rewards, too.