Cash or Credit? Depends on Your Personality

cash or creditWill that be cash or credit? I recently told you about a couple of my favorite credit cards.  While plastic can work for some, others might be better off using cash – it really comes down to personality.

A study back in 2009 by the Journal of Consumer Research showed that people are more reluctant to spend a crisp $100 bill in their wallet than smaller denominations of currency. Basically, the bigger the bill the more reluctant you are to break it. I remember the first time I held a one hundred dollar bill. I treated it with an odd amount of respect and hoped I would never part with it – funny how mental money can be. Would you even bother to bend over for a penny or nickel these days?

The cash vs. credit debate has been a lively one throughout the years in financial circles. Some say that you spend less when you carry cash (especially big bills). Others say that the rewards benefits that plastic offers are too good to pass up. So who’s right? Well, that depends on your personality.

Know yourself. Be brutally honest. If you have been using plastic for quite some time and you aren’t sure if it has led to needless spending test it out. Try the cash system for a month or two and see if you end up spending less. Make sure to keep good records for accurate comparison. Likewise, if you use the cash system it could be well worth your time to try out a credit card with some great rewards. It could mean an extra two or three percent back in your wallet.

Know the dangers. Each payment avenue has its disadvantages. You could leave your freshly stuffed billfold in a restaurant or on the subway. And you obviously know by now that if you don’t use credit cards the right way you are playing with fire. You can rack up heavy interest charges in no time. Studies show that most of us are also willing to pay more when we are purchasing with a credit card. We don’t pay attention to the price as closely when we are swiping the plastic.

Keep a solid budget using a tool like that can help alleviate those possible issues. My wife and I use Mint and it pulls in all of our credit card spending data every month. We are able to categorize it and see where our money has been going. That allows us to cut back in the areas where we overspent and see where we actually saved money. Since we follow up on our spending every month I really do have to think about every purchase I make.

So should you carry Benjamin’s around to curb your spending? Its all about your personality. I would love to hear about how you handle the cash or credit dilemma.


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