Tuesday, August 31, 2010

5 Reasons Why You Shouldn't Pay With Cash

There has been some dispute about whether using cash saves more money than using say a debit card, credit card or a check. The reasoning behind this is it's psychological factor. It goes something like this: When you use cash, you tend to hurt more psychologically because it's physical paper that you hand over rather than a debit card or a credit card where it doesn't feel as real. In turn, you spend more with debit or credit.

Although I haven't experimented with this myself, I have a couple of reasons why this wouldn't save you money. Prove me wrong if you can, but take a look at these first.

1. You can lose money
- You can literally lose, as in misplace, your money when you carry it around in your wallet, purse or pocket. I had some quarters in my pocket and fell asleep on my friends couch one night and it became sofa change for good. I list a couple of quarters and dimes. That adds up over the years!

2. You aren't getting rewards - If you aren't using your debit card, you might be missing out on some great rewards points. Citibank, for example, has a free rewards program called Thank You Rewards. They pay you in points just for doing regular banking activity like: direct deposit or purchases. You can accumulate points fairly quickly and the more products and services you use, the more points you're going to gain.

3. You are losing on interest - With all that change you get back from store while using cash, you don't have enough to roll it up and deposit in your bank account so you put it in a piggy bank where it starts earning 0% interest plus inflation. You could be putting this money into an interest bearing account. With a debit card or check, you only take out just enough each time. Put your money in an interest bearing account instead.

4. You Are Prone To Loan Away Or Give Away - Do you know how many times homeless people asked me for money when I only had a debit card? My excuse was, I don't carry cash. It was true at the time but now when asked if I have any spare change, I give it away! Also, a friend asked if I had $10 to loan him and I didn't get it back until 2 months later.

5. You Have The Urge To Spend - I shop at yard sales all the time with my mother because it's sort of a ritual we do. I noticed I buy more things now that I have the cash.

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