Wednesday, October 22, 2008

Pros and Cons of Going Cashless with a Credit Card

We've all heard the prognosticators say that a cashless society is right around the corner. And, they've been saying this since the 1970s, which more and more people opting to use a credit card or debit card for the majority of their monthly purchases. Perhaps the much vaunted cashless world is a virtual never-land where the Jetson-type cars and jet backpacks exist that we all grew up expecting to experience.

Regardless of the hype, it is quite possible to live a largely cashless existence in this country by relying on a credit card. This is particularly true if one lives in a major metropolitan area that provides major retailers and restaurants on every corner. It's almost hard to find a gas station anymore that doesn't have a pay-at-the-pump with a credit card option.

However, this does not mean that cash is dead, by any means. It's just a matter of choice and financial style that determines the degree to which a person relies on plastic, in the form of prepaid debit cards and credit cards, to get through their day to day lives.

There are distinct advantages and disadvantages to both paper and plastic forms of payment. Concerning cash, it can provide a healthy dose of anonymity when used as legal tender to pay for goods and services. And, privacy is a rapidly vanishing commodity in this country, so that advantage shouldn't be discounted. On the other hand, cash generally requires in-person payments to be made, which can be inconvenient compared to credit card and prepaid debit card transactions. The latter can be used remotely in a point of sale scenario where the customer swipes the card through a reader as well as for online purchases.

Another set of positive and negative aspects of cash exists that should be discussed. Cash has an immediate, visceral quality that can actually help control excess spending relative to making purchases with a credit card or debit card. You can try this experiment the next time you make an impulse purchase and, instead of pulling out the Visa or MasterCard, count out what you owe in cold hard cash. It provides a greater degree of clarity regarding the sacrifice you are making in exchange for the object of your desire. The downside of being a heavy cash user is the security issue. Losing cash or having it stolen is always a risk, and once it's gone, it's gone.

Concerning plastic, there are many reasons to consider moving to this progressive mode of financial management. These include convenience, security and automatic record-keeping of your purchases. But, as with many seemingly great things in life, there is a price to pay for this convenience. One is the fact that it's much easier to let spending get out of control when all you have to do is swipe a plastic card to make your purchase.

Another involves the expense of paying interest for months or years if you are unable to pay your balance in full each month.

So, which is better? Cash will probably never go away completely, much to the consternation of Visa, MasterCard, Discover Card and American Express. Even though the major card companies have been going after the micro-payments market in a big way, there will probably always be currency floating around the globe. But, it's good to be aware of the pros and cons of both cash and plastic and manage your finances accordingly.

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