When it comes to your daily expenses, such as groceries, gas and entertainment, you may not think twice about how you pay for them. Perhaps you swipe your Citi® Double Cash Card to earn 2% cash back, or your Chase Sapphire Reserve® to get 3X points on travel.
But as with all things money, there is a rule of thumb for how you should pay — and it depends on a number of factors.
Below, CNBC Select asked Rod Griffin, Experian’s senior director of consumer education and advocacy, for his advice on what you should use when paying for everyday purchases.
Cash, debit or credit: Which should you use for everyday purchases?
- When to use credit cards
- But “credit cards aren’t for everyone”
- When to use debit cards
- When to use cash
- If you’re using a credit card for everyday purchases, consider this
- Bottom line
1. When to use credit cards
With all of their perks and rewards, using credit cards can be a financially sound decision. With credit, you can take advantage of some key benefits you don’t get with cash or debit cards.
But using credit is also dependent on your ability to live within your means. “It’s a question of, ‘Are you using credit as an additional income source?’ or, ‘Are you using credit as a way to take advantage of other financial opportunities?'” Rod Griffin tells CNBC Select.
For example, road warriors can maximize the points they can earn at gas stations with specific gas rewards credit cards. The PenFed Platinum Rewards Visa Signature® Card offers the highest rewards rate at gas stations with 5X points per dollar spent. And in addition to earning high rewards at gas stations, cardholders also benefit from unlimited 3X points at grocery stores.
If you use a credit card next time you fill up your tank and make a run to the supermarket, then pay off the balance in full at the end of the month, you can enjoy the rewards. But if you’re not paying off the balance or you’re paying your bill late, you may end up paying a lot in fees and interest charges.
No matter the type of credit card you have, how you use it really depends on you as an individual. “If you’re using credit as a financial tool and not taking on debt, it can be a financially advantageous decision.”
As long as you are paying your credit balance in full each month (thus you’re not paying interest or additional fees), then you’re taking advantage of credit as a tool to help you be more financially healthy.
“I have known people that use a credit card for every purchase — one card — and they make every purchase every month using that credit card, and then turn around and pay it in full because they take advantage of points for airline miles,” says Griffin.
Credit cards also offer some advantages in terms of security and protection, which debit cards do not. “If traveling, I use a credit card almost exclusively because it helps provide additional protections against identity theft and fraud,” he says.
You can also use your monthly statement as a budgeting tool, keeping track of your purchases so you have no problems paying your balance in full each month.
2. But “credit cards aren’t for everyone”
At the end of the day, your method of payment really does depend on you as an individual and how you want to spend money. As credit card bills have become the biggest source of debt for millennials (beating out student loan debt), it is important to know what you can and can’t afford before making any purchase.
“I’ve always said that credit cards aren’t for everyone,” Griffin says. “It really does depend on your personality, the way that you manage money, your relationship with money and your ability to resist impulse buys.”
3. When to use debit cards
If you’re using a credit card to live beyond your means, or to pay for everyday purchases because you can’t otherwise afford them, you may be better served using a debit card.
When you use a debit card you are effectively making a cash transaction, and so you don’t have the same issue of using a credit card to charge purchases you can’t really afford (if you aren’t thoughtful and deliberate in the way you use that credit account). Of course, you do need to make sure you don’t overdraft on your account, which can result in you paying high fees.
For many, when it comes to using debit cards over cash or credit, it is really just a convenience issue. “I actually personally will use a debit card,” Griffin says. “If I go out to eat, for example, we tend to use a debit card, my wife and I, because we see it as ‘cash now’ and that’s our habit.”
4. When to use cash
Using cash has the same financial implications as using a debit card, but with cash you may spend less than you would swiping a card because it’s more tangible, and you can actually see the money go away.
Credit or debit cards are so easy to use, that you can swaipe it without thinking about how much you’re actually spending. With cash, it’s easier to have a since of what you’re spending. “If you’re using cash in particular, real paper greenbacks, when your purse or wallet is empty you’re done, so you can limit your spending in that way,” Griffin says.
For some people, being restricted to using only cash may be a better approach. If you still want to rack up credit card rewards, be deliberate in the way you use your card. Perhaps it is a mix of different methods that work for you.
“You may use cash for buying dinner, but use a credit card for bigger purchases just because it suits your budget and your financial style better,” Griffin says.
Not to mention, carrying cash as a back-up is a smart idea in case there is an everyday purchase you want to make where the vendor doesn’t accept credit. You may have been advised by your parents to always have cash on you. Despite the rising trend of Americans using cards over cash, Griffin points out that there is, in many cases, a generational difference when it comes to method of payment preferences.
“As a more seasoned individual myself, there is a tendency to use cash,” Griffin says. “It’s a sort of trained response, if you will. It’s something that we’re so accustomed to doing.”
5. If you’re using a credit card for everyday purchases, consider this
If you’re using a credit card to make all of your purchases, you should also consider the future implications it has on your credit score. By using credit for every purchase, you can easily end up using a substantial portion of your available credit limit, which can have a negative impact on your credit score. “If, as a result of using your credit card to make purchases, you have a high utilization rate, that can drag down your credit score and that can be important in longer term decisions,” Griffin says.
If you need to buy a new car or you want to apply for a mortgage loan in the future, this could impede that process, so there’s a longer term concern to consider when making smaller, everyday purchases.
“We always recommend if you’re using credit, make sure you understand the implications for your credit history and your credit score,” Griffin says. “Check them regularly, and if you’re paying the balance in full that’s great and you’ll probably be fine.”
6. Bottom line
Next time you’re at the register, think again about your method of payment. Though there may not seem to be any reasoning for the form of currency you choose to use to complete a transaction, how you pay for general purchases can say a lot about your financial well-being.
And if you are using a credit card or multiple cards for your everyday purchases, be aware that there are more implications to buying things on credit, both potentially positive and negative. But at the same time, if your balances aren’t too high, you’re paying them off in full at the end of each month and you’re taking advantages of things like additional security and rewards, using credit cards can be the right choice for you.
Editorial Note: Opinions, analyses, reviews or recommendations expressed in this article are those of the CNBC Select editorial staff’s alone, and have not been reviewed, approved or otherwise endorsed by any third party.