Celebrate the death of cash

Cash is no longer King. Throw everything out of your wallet except your cards!

We all know that the amount you spend can make or break your financial situation. However, how you spend it can also make a big difference to the health of your wallet.

Here, I’m going to highlight some of your options.

A payments revolution!

In the last decade, the UK has undergone a payments ‘revolution’. According to new figures from the UK Payments Council, cards have taken over in a big way, with both cheque and cash payments being pushed to the sidelines.

Here are some of the report’s findings:

The decline in the use of cash is even more dramatic than it first appears. At the moment, six in ten transactions still involve cash. However, almost 80% of these are transactions worth less than £10. 

Hurrah!

This is a good thing, because cash is definitely not the best way to pay for most things.

So what is the best way to pay? In a nutshell, it very much depends on the situation you’re in, and what you’re trying to achieve.

To earn free money

If you have a good credit rating and are able to clear your credit card balance every month, paying by cashback credit card could make financial sense.

Every time you use one of these cards, you’ll get a percentage of the total purchase price back as cashback. That’s free money that you wouldn’t have got had you paid by cash or debit card.

One of the best cashback cards currently on the market is the American Express Platinum Cashback card. This offers 5% cashback for the first three months (up to £100). After that, you'll earn up to 1.25% cashback, depending on how much you spend.

Of course, many independent retailers and restaurants still don’t accept Amex. A good alternative is the Egg Money Mastercard, which offers 1% cashback on everything. Just be aware that this card charges a £1 monthly fee.

Alternatively, if you prefer rewards over cashback, get a rewards card. A good option is the American Express Rewards Credit Card, which offers points for every £1 spent and gift vouchers to use to spend at heaps of UK high streets. Find out more by watching this video.

Or if you like air miles, go for the Lloyds TSB Duo Airmiles Card. This card is great because taxes are included in the cost of the flights which you pay for using airmiles, and you can get a free companion ticket if you spend over £15,000 on the card. Plus, you get double points when you spend on the card abroad, and a 1,500 bonus air miles whenever you spend your first £10 on the card.

Whichever card you go for, just make sure you’re able to pay off your card - in full - every month. If you don’t, the interest you’re charged will almost certainly outweigh any cashback benefits.

For extra protection

Credit cards are also useful for larger purchases because they give you a layer of consumer protection that cash doesn’t offer. Under Section 75 of the Consumer Credit Act (1974), you’re able to claim against your credit card company (as well as the retailer) if there is a problem with your purchase.

This protection applies if the value of the item bought is at least £100, but no more than £30,000. Read Why credit card spending is wise! to find out more.

Visa debit cards offer similar, though more limited, protection under the Visa debit chargeback scheme. You can find out more about this in Why plastic really is fantastic!

If you can’t clear your debts

Many people in financial straits find that cash does work best for them, because it makes it easier to keep track of exactly what they’re spending.

Related how-to guide

Pay off your credit card debts

How to destroy your credit card debt quickly and effectively.

See the guide

This sort of credit card offers 0% interest on new purchases for a certain period of time. Currently, the Tesco Bank Clubcard MasterCard and the Sainsbury’s Finance Nectarcard Credit Card MasterCard are joint market leaders, both offering 0% interest for 12 months. Plus you collect Clubcard or Nectar points whenever you spend.

Just remember that for those in debt, a credit card really should be the last resort. Make sure you pay off the full balance before that 0% period comes to an end. And don’t be tempted to up your spending just because you’re not paying interest!

When you’re overseas

To ensure you get the best-value holiday money, read The best way to get your foreign currency!

When it comes to using plastic abroad - to pay for something or to withdraw cash - you need to assess your spending options very carefully. It’s a bit of a minefield, with most credit cards and debit cards charging a host of fees when used abroad.

Here at lovemoney.com, the Nationwide debit card has long been considered the best debit card to use abroad. You won’t be charged for using this card or withdrawing money in Europe, although unfortunately you will be charged a 1% fee outside of this zone.

Unlike most credit cards, the Santander Zero credit card (formerly the Abbey Zero card) charges no usage fees when used abroad. However, if you use it to withdraw cash from an ATM, that transaction will be charged interest at a whopping 27.9% APR! Read The very best card to take on holiday to find out more.

Many people are now turning to pre-paid currency cards to get around these sorts of drawbacks. To find out more, watch this video about pre-paid currency cards.

A payment method to avoid!

As you can see, the best way to pay depends entirely on the situation in which you find yourself, and your personal financial circumstances.

I’ll end by flagging up one of the ways you should never pay for things - with credit card cheques! In a nutshell, the cheques sent to you with your credit card attract a huge rate of interest (usually equivalent to making a cash withdrawal), plus very large individual handling fees.

To find out more about why you shouldn’t touch them with a barge pole, read Easy money comes at a high price!

Get help from lovemoney.com

If you need help saving money, you've come to the right place.

First, adopt this goal: Build up your savings

Then, watch this video: Slash your energy bills

Finally, why not have a wander over to Q&A and ask other lovemoney.com members for hints and tips about what worked best for them?

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