If you want to keep your spending under control, is cutting up your credit cards really the answer? Serena Cowdy investigates.
More of us are shunning card transactions and choosing to pay with cash, according to a recent study by the British Retail Consortium (BRC).
The Cost of Collection survey shows that cash is now used for 60% of all purchases in the UK, up from 54% last year. And measured by value, cash is now used for 34% of retail spending, compared with 32% a year ago.
It seems that despite the wealth of credit cards on offer, we're becoming more reluctant to flash our flexible friends.
Why is this?
In the current wobbly economic climate, Britons are tightening their belts and trying not to spend money they don't have. And, in many ways, that's a good thing. Here at The Fool, we always endorse prudent financial behaviour.
Nevertheless, credit cards can be a useful financial tool if used in the right way. There are pros and cons to both forms of spending. To help you decide which is best for you, here's a quick look at the case for cash - and the benefits of credit cards.
The case for cash
Paying with cash makes many people think more carefully about what they're spending. Parting with a crisp tenner is often more painful than entering a pin number - so you might be less inclined to fritter money away.
Many smaller merchants still don't accept card transactions, particularly if you're spending less than £10 (because of the big fees outlined below). So if you only want a bar of chocolate or a can of coke, cash is usually where it's at.
Paying with cash helps support your local shops. According to the BRC, customers often don't realise how much retailers are charged for processing card payments. On average, a retailer is charged 2p by the bank for processing a cash purchase, 8p for a debit card transaction and a whopping 34p for a credit card sale (by the card issuer).
These costs are too high for many smaller retailers to absorb, and they're usually passed on to customers in the form of higher prices.
The case for cards
If your cards are lost or stolen, you can cancel them. If you're carrying a big bundle of cash, you stand to lose the lot.
If you're spending over £100, a credit card can offer you valuable extra protection under Section 75 of the Consumer Credit Act. If the goods you've paid for fail to arrive - are damaged or faulty - or don't meet their description, you can pursue the credit card issuer for breach of contract, as well as the retailer. Read this article to find out more.
Many credit cards offer rewards that you wouldn't get paying by cash. You can now get cashback, earn air miles and take advantage of holiday discount offers.
A word of warning though: you shouldn't apply for reward or cashback credit cards unless you pay your balance off, in full, every month. If you don't, the interest you'll be charged is likely to far outweigh the benefits.
If you're paying for something using the internet, you'll need a debit or credit card. That means cheap online deals, like flight and holiday bookings, will be out of your reach if you're only willing to pay with cash.
Finally, you may feel like you're taking control of your finances paying by cash - but the money you're spending isn't necessarily yours. If you've gone into your overdraft, it still belongs to the bank!
So there you have it. If you want to keep all your options open, you may well decide to carry both cash and cards.
The most important thing isn't how you spend, but how much you spend, and how much is left in your bank account! Whether you choose to stick with cash or opt for plastic, try and stay in the black. That way, you really will be taking control of your finances.
More: How To Find Forgotten Money | Kick That Serious Spending Habit...Today!
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