How To

Charge It: 5 Reasons Using Plastic Beats Cash

photo: Damon Duncan

The next time you’re sifting through your change purse to pay for your morning latte, consider this: reaching for a credit or debit card instead will save you time – and perhaps even some money.

These days, you can pay with plastic pretty much anywhere – and the benefits are clear, says Curtis Arnold, founder of CardRatings.com. “The added security and convenience of plastic over cash are often cited and fairly straightforward,” he says. 

Just last week, one of his coworkers had her purse stolen. “Believe me, she is so thankful that she only had credit cards and no cash,” Arnold says. Someone did end up using one of her cards, but her out-of-pocket costs will be $0 thanks to the fraud protection offered by credit-card companies.

Although credit cards do carry risks – chief among them going into debt and forking over hefty interest charges and fees –the benefits often outweigh those risks. David Weliver, publisher of Money Under 30, says that even those years ago he learned a tough lesson overspending on credit cards, he still prefers them over cash for almost everything. Only now, he makes sure to pay off the balance in full each month.

“Credit cards act as an intermediary between my money and the things I buy,” Weliver says. “If I buy from a shady merchant or somebody steals my card, the merchant or thief doesn’t get the money directly from my bank account.” (That’s not the case with debit cards, of course, those $0 liability protections are universal among these products as well.)

Still not convinced? Here are five benefits to using plastic you should consider:

1. Free money or miles

When you use cash to pay for groceries, gas, or anything else, you are not getting any rewards whatsoever. With a good credit card, you can earn 2% cash back or more on anything you buy. Spend $2,000 a month, and that’s an extra $40 in your pocket: $480 a year.

Many debit cards, such as the one from PerkStreet Financial, now offer cash back as well. And the Chase United Mileage Plus debit card offers air miles (albeit for a $65 annual fee). When was the last time cash gave you a free flight?

2. Accountability

Most people benefit from accountability and automatic record-keeping. When you purchase a $500 ad campaign for your small business or charge a work-related expense with a credit or debit card, a record is automatically created for you. And the banks keep those records – electronic versions of your account statements – for as long as seven years.

That accountability is great during tax time. You can download all transactions into the personal finance software of your choice and automatically categorize everything, and many issuers send out year-end reports that are very helpful in preparation for April 15th, Arnold says. (Accountability is not good if you are maxing out the company credit card on flight upgrades and strip clubs, however.)

3. Free loan

If you pay your balance in full and on time each month, you can take advantage of your credit card’s grace period (typically at least 21 days from the statement date) and not pay a dime of interest. That’s basically “getting something for nothing,” says Gerri Detweiler, personal finance advisor at Credit.com. “At a minimum, you have the float—the use of the bank’s money for up to two months.” This short-term loan frees up your money, so it can earn for you in a high-yield savings account.

4. Purchase protection

American Express has a purchase protection policy that reads like something out of a fairy tale. Except it’s true: buy anything that turns out to be defective or breaks within 90 days, and AmEx will pay for the repair or replacement of the item – or will reimburse the amount charged on the card. (There are limits, of course: up to $1,000 per occurrence or $50,000 per year.) 

Visa, MasterCard and Discover cards have similar protections. (And get this: if you find a lower price for a new item you bought with your MasterCard within 60 days of the purchase, MasterCard may reimburse you for the difference.)

Your cost for all these perks? $0.

5. Convenience

Try shopping online without a debit or credit card. In most cases it’s a hassle, to put it mildly. Cards make it painless for us to spend, both online and at the store.

Of course, depending on who you ask, painless spending is not always a benefit. “Typically, a person who shifts to using cash saves 20 percent,” says Gail Cunningham, a spokeswoman for the National Foundation for Credit Counseling.  The knowledge that you’ll be paying with cash makes you more contemplative of your purchases, so instead of mindlessly shopping you only buy what you truly want or need, Cunningham says.

David Seaman, a personal finance writer based in New York City. He wants to be your Facebook friend: www.facebook.com/seaman.