Nowadays, paperless technology allows consumers to make cashless, electronic purchases. Some people still prefer to use cash or checks as their payment methods but whatever payment method you use, make sure you have the funds and budget to pay for the purchase now or at the end of the month if you use credit cards.
Managing and budgeting your money before buying items at the store, going on vacation, or eating out, etc. will prevent you from overspending. How can you ensure that you won’t go in debt from big or small purchases? How secure is it to make purchases in different ways? Learn the pros and cons of these 6 payment methods and figure out which is best for you in different situations.
- Cash: Pay with cash when you’re planning to make smaller purchases like groceries or if you are running errands. Bring a limited amount of money for shopping or running errands to restrict you from getting carried away and making unnecessary purchases. Statistics show that you will spend 30 percent less with cash than with a credit card. However, if you’re buying a big-ticket item, then you will probably need to use your credit card instead of cash. Having a large sum of cash for a purchase may make you vulnerable, and if you lose the cash there is no option to get it back. Remember that safety comes first.
- Checks: Paying with checks may seem a bit old fashioned but it’s still being used today, especially by the older generation. Be sure that you’re not overspending and receiving overdrafts—sometimes the overdraft charges can be as much as your purchase. When using checks your identity could be at risk since your bank routing and account numbers and personal contact information, like your address and phone number, appear on your checks.
- Credit Card: Using a credit card isn’t always a bad thing especially, if your purchases are budgeted and your charges can be paid off when the statement comes. The risk with credit cards is running up a balance and accruing interest on top of your purchases, which will negatively impact your credit score. You’re protected from charges you don’t make when you have a credit card, which is good. If there is fraud and someone else uses your credit card you are protected from paying for any charges over $50 (typically.) In case of fraud, credit card companies will remove the charges and mail you a new credit card. Additional benefits include cash-back offers that can be used on future purchases or for saving the money in your bank account or emergency fund. Some credit-card companies also provide extended warranties for electronics and other items. The most important thing is to use credit cards only for budgeted items and to pay the card off in full at the end of the month.
- Debit Card: When you use your debit card, the funds come out of your bank account immediately. The downside of debit cards is that they do not have as strong a fraud protection plan as a credit card. The cardholder’s liability for unauthorized use depends on how quickly you report the card as lost or stolen.
- Prepaid Card: Loading money on a prepaid debit or credit card allows you to ONLY spend the amount that’s available. Plus, you don’t accrue debt, and you’re funding purchases in advance. This is a great way to spend money during Christmas since you’re using budgeted money and not withdrawing cash. Prepaid cards are also a wonderful way to help a student in college or high school learn how to spend responsibly. If you make a purchase with a prepaid card, be sure to keep the prepaid card just in case you need to return an item. Some stores may require you to have the prepaid card in order to make the return. Read the fine print, understand the type of card you purchased and make sure there are no hidden fees or penalties that will reduce the value of the card.
- Apps: Use your smartphone to pay for a transaction with an app like the iPhone’s Apple Pay. The app scans and collects the purchase information with a single touch and prevents your identity from being stolen along with your banking information. The downside is that some retailers may not have the technology or equipment that allows the app to work.
No matter what method of spending you choose, be sure you’re budgeting and spending money wisely and not accruing debt. You need to manage the money – don’t let it manage you!
Listen to our “Pros and Cons of Spending” radio show to learn more money-wise tips: https://compasscatholic.org/archived-radio-shows/
These words from Pope Francis: “Money must serve, not rule.”
Thanks for reading and on behalf of the entire team at Compass Catholic, we wish you a remarkable 2015!