Sep 10, 2009 6:05 am US/Eastern
Credit Or Cash: Plenty Of Pros, Cons For Each
Paper Is King When It Comes To Negotiation, But Credit Cards Can Frequently Get More Protection From Merchants
NEW YORK (CBS) ―
Paper or plastic? It's not just a question at the grocery checkout. For many it's a financial lifestyle question -- to pay cash only or run everything through on a credit card.
The answer is each has its place.
American spending habits have lead to $21.6 billion of credit card debt. That has some experts saying we could save as much as 20 percent by choosing to go cash-only.
"I prefer cash. I think credit is too risky. Then the debt piles up and you get overwhelmed," said Makini Olson of East Flatbush.
"If you had to fork over 100 $1 bills you'd think more about it than if you use a piece of plastic," Brian Kelly added.
"I bet we could find that 10-20 percent of your money we don't know where it goes. Part of the problem is we use credit cards," said Jill Schlesinger, editor at large for CBS Moneywatch.
Consumers who only want to spend what they actually have increasingly choosing debit cards, providing banks with record profits, coughing up some $27 billion in overdraft fees when they go over the limit. And that's not the only downside.
"Big problem with cash is once you have given them the money, even if they've violated the law, you have to go after them. With a credit card you can dispute the charge," said Anthony Giorgianni, associate finance editor for Consumer Reports.
In fact, Giorgianni says credit cards win in nearly every category, especially consumer protections mandated by law.
"You're gonna get airline miles, rebates, all kinds of cool perks, a record of your purchases and all of those really great federal protections," Giorgianni said.
Cash is king when it comes to negotiating and credit cards can frequently get more protection from merchants or when products become defective.
Experts say always break out the plastic on certain purchases – like travel, appliances and furniture.
Plus, you can dispute a charge if the quality on product or service is less than expected. You have extended warranties, even price protection, depending on the credit card.
Cash can give you a better negotiating position with some merchants. So when should you always pull out the paper?
"Absolutely, never use a credit card if you're going over the limit," Giorgianni said.
It's a lesson our debt-saddled nation has yet to fully learn.
For more debit card and credit card drawbacks, click
here,
here and
here.
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