July 7th, 2010
Should You Go All Cash Or All Plastic? The Perks And Precautions
Going Cashless
Once upon a time, cash was ubiquitous amongst common folk and “charging it” was reserved for the rich, fancy-pants type. Now, most Americans are paying less by paper and coin and more often in credit card, debit card, online transaction, and even up-and-coming mobile phone payments.
MintLife Blog writes that the future of money is the age of the cashless, as the rise of debit cards in the mid-1900s signaled the decline of paper checks and cash. Today, the fall of cash is speeding up thanks to increased credit card use and the introduction of mobile transactions via Smartphone, reports Daily Finance. Down the road, paying by cell phone may force credit cards to go the way of cash.
It’s unlikely that you’ll make a definitive lifestyle change to go all plastic, but it’s interesting to see the perks and precautions if you did decide to go all-cash instead. If you decide to go with either extreme and ditch cash or plastic, be sure to comment and let us know how it’s going.
Going All-Cash
- Perk: Imagine life without debt. If you go all cash, you can’t get in over your head with debt if you aren’t swiping more on credit than you have actual money in the bank. Plus, budgeting strategies like the cash envelope system is a simple way to keep track of expenses and restrict spending.
- Precaution: If you don’t use credit, you won’t build credit. A great credit score and comprehensive credit report is crucial for a healthy financial life because it gives access to loans, credit, and is looked at by employers, landlords, etc. Without credit, you’re limited in your financial options.
- Perk: You avoid pesky fees and sneaky banking practices. You won’t be subject to the ups and downs of the credit card industry and won’t have to worry about interest rate hikes or surprise charges if you steer clear of using plastic altogether.
- Precaution: You’ll give up some convenience. Carrying hundreds of dollars on you for every shopping trip or big ticket purchase is not only inconvenient, but can also put you at greater risk of theft. Plus, you’ll have to make constant trips back and forth to the bank.
- Perk: How would you like less stress? Cash-only means you will potentially have no debt fears looming over you, no credit card bills to be anxious about, and you’ll learn to manage money so that you are in control of it, rather than the other way around.
- Precaution: With no credit or debit card, you can’t benefit from any cash back or rewards program. If you look forward to getting cash rebates, airline miles, or rewards points for every time you spend, it may not be worth it to you to go without plastic cold turkey.
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The thought of living without a credit card (or at least the accompanying debt) can be quite exhilarating! A couple additional factors to weigh in considering going cash-only:
You’ll lose the protection provided by the Fair Credit Billing Act! Under the FCBA, you have rights to challenge charges for defective goods (via a charge-back).
Beyond the FCBA, most issuers of credit cards provide extended warranties for goods (for example, some double manufacturers’ warranties). For this reason, most consumer advocates recommend that buyers put all major purchases on a credit card, rather than paying cash/check/debit. Some card issuers even provide additional travel insurance or road side assistance.
Theres are not meant to be *conclusive* benefits, but definitely something consumers should consider in deciding whether to scrap their cards entirely. It might be worthwhile to consider going mostly cash free, but saving the credit card for the biggest purchases.
I find this post very intriguing to go all the way with credit or cash. Personally, I like to use my credit card for the perks and other benefits (dispute charges). Studies constantly show that people tend to overspend using credit though. For some reason, I’m in the minority because whenever I have cash on hand I tend to just spend it.
In some places though Cash is King and the only way to pay. Check out http://gainmoneycontrol.com/cash-is-king-sometimes-it’s-the-only-way-to-pay/ for more on this topic.
A friend told me that his children didn’t have to take out loans to get good credit. He simply had them open a credit card account with a limit of $200. They then charged on it and paid off the loan each month. The limit was gradually raised. I did this with my children and when they bought homes they were able obtain mortgages without any trouble even after the financial crash.
I opened the accounts while my children were under 18 so I had to co-sign on the credit card but with a $200 limit that is not a problem. A popular notion is that you have to co-sign on a car for your children to get good credit. This is risky and unnecessary. I told my children to save for a car and buy used, which they did.
All five of my children, now grown, are great savers and very responsible with money.