A British journalist, Oliver Burkeman, conducted a little experiment: He left his credit cards at home for a few weeks in favor of going all-cash (or all-Pound, as it were). The idea is that people who use plastic spend more money than those who use hard currency.
According to Fox News, there is research to back up this belief. However, proving the “cause and effect” — using credit cards causes a consumer to spend more money — hasn’t been proven. “People who use plastic are often more affluent than average, while people who pay in cash sometimes do so because they have no choice. Perhaps they can’t get approved for a card because their finances are in a mess, and consequently they endure serious liquidity constraints,” the article says.
Moreover, there’s the suggestion that people who use credit cards think differently about their purchases, taking features and benefits into greater account. Those using cash, the research asserts, think foremost about price. Perhaps. But surely, anyone spending money on an item would be willing to spend a little more, if possible, to ensure that what they’re buying won’t fall apart right away.
We would recommend that you try and use cash as much as possible, especially if you are living on a tight budget (saving for a big purchase, trying to pay down debt). It’s really mental. When you think about your lush, green dollars slipping from your hand and into that cash register, you can’t help but to ponder a little more closely whether the purchase really needs to be made. And, once the purchases are made and your wallet is empty, it’s much easier to see where your money went. How many times have you looked at your bank statement and had your memory refreshed — Oh yeah. I spent $50 on drinks with friends on Thursday. And $75 on that dress on Saturday. And $50 on that fancy body lotion I treated myself to in celebration of surviving a rainy Monday. You’ll wish you’d just gone right down the block and gotten some Nivea.
The story points out some clear benefits to using plastic. If you run into a problem with a purchase, you have a record of it. A lost card can be replaced whereas money is gone forever. And the rewards can add up to a nice little something.
But with all of these perks, what’s really important is strategy. For instance, you have a card that offers points, which can be redeemed toward an airline ticket. Perhaps you decide that all of your clothing, restaurant and salon purchases for the next six months will go on the card. There’s no need for an extra pair of boots, an additional night out on the town, or an extra deep conditioner. The point is to get something extra. If you spend the cost of the airline ticket on all these extraneous items, what have you gained? If you find that you’re not earning enough points, maybe start putting your groceries or gas purchases on the card; things that you would normally buy anyway. The point is to make the money you spend every day go a little farther. But keep in mind: credit cards charge interest. If you can, pay off the bill in full every month. Then, you’re really taking advantage of that bonus.
Credit and debit cards definitely have their advantages, so we wouldn’t say you should swear them off entirely. But if you have spending issues, you have to take that into account when you’re budgeting your credit card expenditures. If you go swipe happy, you’ll eventually get very, very sad.