Using Cash, Debit and Credit? Here's a Good Reason to Stop


I should preface this story with a disclaimer: I am not being paid by American Express, and I wasn’t even alive when the famous “Don’t Leave Home Without It” campaign debuted in the ’70s. That said, I really don’t leave the apartment without my charge card.

I use it for everything—to pay for groceries, subway rides, my cell phone bill. It only stays in my wallet when I use my FSA card for health care expenses, Amex isn’t accepted or on the very rare occasion when I’d reap significantly better rewards by using a different card. (For instance, another card offers 20 percent cash back on Uber rides.)

But this is a relatively new habit.

Before my husband Andrew and I merged our finances, I essentially took the opposite approach. While I primarily used my debit card, I’d also spend a little cash, then throw a few charges on my credit card and pay them off—you know, to even things out. There was no rhyme or reason to my strategy, which, in turn, made reconciling my statements and remembering how I’d spent that $200 ATM withdrawal unnecessarily hard.

Andrew argued it’d be even tougher to track two people’s transactions. So after we got married in October 2014, he added me as an authorized user on his Amex, and I shifted almost all of my spending to that card. The payoff? At any given time, we can look online for a snapshot of everything we’ve collectively spent. And at the end of the month, there’s just one statement to review and one household bill to pay. Plus, we’re rewards junkies, so pooling expenses helps us build up our points balance faster.

I know, our particular brand of budgeting wouldn’t work for everyone. Because charge cards don’t allow you to carry a balance, they typically require excellent credit scores to qualify and a lot of discipline to stay in budget. But you don’t need to use a charge card to reap the benefits of sticking to one primary payment method, as Michael H. Baker, a Certified Financial Planner and a founding member of Vertex Capital Advisors in Charlotte, N.C., points out.

“The approach could really simplify someone’s financial life, which is always a good thing,” he says. “I like the idea of people at least attempting it.”

Here’s how you can—whether you use cash, debit or credit—and how to decide which method might make the most sense for you.

The Cash-Only Method

Study after study has found that people who pay with paper fork over less of it than those who prefer plastic, which is one reason why all-cash diets are typically recommended for overspenders. Baker also likes this strategy as a trust-building exercise for young couples integrating their finances because it’s a tangible way to stay accountable to a joint budget—and each other.

The execution is simple: “The all-cash thing works when you give yourself an allowance, like you say you are only going to spend $100 this week on discretionary stuff, and stick to it,” explains Pamela Capalad, a Brooklyn-based Certified Financial Planner who talks money over meals with clients through her company, Brunch & Budget. Translation: No extra trips to the ATM allowed.

An easy way to do that is to withdraw the cash on Sunday and put it into different envelopes marked by category (e.g. meals out, groceries, toiletries). Just make a concerted effort to take out enough at the beginning of the week to satisfy all the expenses you can pay with cash, and hold yourself to it when you run out.

The Debit-Only Method

The debit-only approach is a great option if you like the convenience of plastic (and using apps to do your tracking), have credit card debt—or there’s just something about watching your bank account balance decrease with every transaction that feels better than cringing as your credit card balance climbs.

Just keep in mind that “if you’re going to go all debit, you have to go all debit,” Capalad says. “Leave your credit card at home, and unlink it from Amazon, Uber, Seamless and other services. That’s the big thing with credit card stuff—you link it to auto-payments, and you’re still using it.”

While debit-only might be the safe choice if you’re in debt, there is a security risk to consider. “A lot of banks are getting better at cyber protection and dispute resolution, but if somebody gets your debit card or access to your checking account, they can do some real damage,” Baker says. “You have to fight to get it back, and in the meantime, the money is still gone.”

So if you’re going to pursue this method, be sure to keep a close eye on your balance and transaction data so you can spot anything unusual quickly and alert your bank. According to Capalad, some renters insurance policies also offer identity-theft riders, so look into whether it makes sense to add this protection to your coverage.

The Credit-Only Method

Baker and Capalad agree: You must be debt-free to go credit-only. “If there’s other debt, it’ll get way too confusing because you’ll be making extra payments, and it won’t truly be ‘one payment’ after all,” Capalad says.

She’s alluding to one of the best benefits of this approach—the ability to streamline your payment due dates. Instead of staggered deadlines for your utilities, gym, phone and other random bills throughout the month, loading everything onto your credit card means you likely only have to remember one, aside from rent, which is nice for your sanity and for your cash flow.

As for whether this is a smart way to accumulate points and miles, Capalad says it’s a nice bonus if you’re well-versed in the rewards game, but the math may not work for everyone. Without a big sign-up bonus, working toward a 30,000-mile flight one measly dollar-a-point at a time, for example, could take a very long time.

If that’s the case, consider using a card with perks that are easier to access like cash back, elite status at your favorite hotel chain, purchase protection, airport lounge entry or free checked baggage—which can all be rewarding, too.