You probably make purchases almost every day: getting a cup of coffee, filling the gas tank, or loading up on groceries. But if you stop and think about it, there may be advantages to HOW you make your purchases.
When should cash be used?
Cash is one of the best options when paying for small transactions and getting discounts at small businesses. At some gas stations, you may even see up to 10 cents off per gallon, which might not seem like much, but can save money in the long term. Cash also helps you to stick to a budget, since it provides a physical representation of how much money you have left.
Some disadvantages include no proof of purchase unless you ask for a receipt. Also, there’s the risk of losing your money if your wallet is lost or stolen.
When should a credit card be used?
Consider using a credit card for large and recurring purchases. Many credit cards offer purchase protection and rewards or cash back to help save you money. You also can set up automatic payments to keep track of your monthly and annual expenses and avoid accruing interest on credit card debt. Credit cards are also convenient for making online purchases and can offer some protection against fraud.
Using a credit card responsibly and making on time payments can also help you build your credit score, which will be beneficial when applying for loans down the road. It’s best to charge what you can afford to pay off each month, as an overdue balance could lead to a high amount of debt and a lower credit score.
When should a debit card be used?
Debit cards allow you to spend money without the risk of going into debt since you can only spend as much as you have in your account. Like cash, debit cards can help prevent you from making impulse purchases since you’re limited to your available balance.
A downside for debit cards is the lack of perks and rewards credit cards provide. Extended warranties, purchase protection, and cash back are normally not offered. Also, debit cards deduct money from your account immediately, so if you’re making multiple purchases with your debit card in a short time, it can be difficult to keep track.
It’s important to use the payment method you’re most comfortable with. Cash, credit cards, and debit cards all have their pros and cons so carefully weigh your options and choose the method that’ll best fit your needs and lifestyle.