We all like stuff… but what’s the best way to pay for it?

You probably don’t spend as much time thinking about how you spend your money as you do actually spending it. Or maybe you have found yourself in freeze mode before you click the “pay now” button. Either way, looking at the pros and cons of all the payment options can help you strategize on the best way to pay for you.

The Money in Your Pocket: Cash & Debit 

For convenience’s (and your budget’s) sake, use your most liquid forms of payment: cash and debit cards. Given these are your readily available funds and, most importantly, finite you can conveniently spend the dough without the risk of overspending. This is a huge perk if you’re trying to build up your savings, learn how to budget, or avoid any possibility of credit card debt. 

Debit cards can be a great tool to manage your budget because transactions show up on your account in real time and in a categorized format, so you can easily monitor where your money is going. That means time and money in your pocket! Keep in mind though, the quick swipe of the piece of plastic can make us feel like we’re not really spending money, making it easy to spend more than we would when handing over our hard earned cash.

Reward & Risk: Credit Cards

By swiping your card you’ll have the opportunity to build credit in the long run. And if you already have credit, but need to boost your credit score, credit cards are the single best way to do that… as long as you always pay on time. Having a consistent, on-time payment history boosts your credit score which can give you the power to buy and rent housing, qualify for loans, secure insurance, and more. 

Depending on the type of card you have you can earn easy rewards on simple, everyday purchases. Get back up to 5% cash back on every dollar you spend, earn points and other rewards. Some cards even allow you to choose specific categories to earn rewards on such as groceries, restaurants, and gas - talk about bang for your buck! 

Just like debit cards, credit cards are also useful in tracking your spending. Track your spending by category via your online account. Spending too much on those iced coffees? Now you know!

Let’s not forget that credit cards can come in handy for those larger purchases that you need but don’t have sufficient funds to cover right away - just be sure you pay off your bill every month to avoid interest and keep increasing your credit score. Borrowing money on a credit card isn't a good substitute for careful saving or planning, but it's a useful backup plan if you have large, essential, unexpected purchases that you can't pay off immediately. 

Another word of caution – psychology shows that swiping that piece of plastic instead of using physical cash can lead to overspending because we’re not as aware of what we’re spending. This is why it’s always necessary to be extra attentive to following a spending plan, staying on top of payments, and asking ourselves “is this purchase necessary?” while swiping.

Buy Now, Pay Later? A Good Option... but Proceed with Caution 

Buy Now Pay Later (BNPL) are those buttons you see at online checkout when you’re about to make that $80 purchase and it conveniently asks if you want to pay in 4 installments of $20 each. Seems too good to be true… and gets me thinking maybe I’ll throw those sneakers back into my online shopping cart after all… 

There are many things to consider when deciding to choose a BNPL payment plan, but one of the most important considerations is, “is this purchase necessary?” BNPL is a great option when you are in a pinch and don’t have the funds needed to purchase an essential item. They give you the option of zero to low interest and there’s no credit score requirement (for now). However, just like credit cards, you are still taking on debt when you use BNPL at checkout and BNPL installments are often higher than credit card minimum payments, so be sure that you pay off your balance to avoid costly late fees or damaging your credit score.

Personal Finance is PERSONAL

As we always say, personal finances are just that, personal. By considering what is most important to you – rewards, building credit, sticking to a budget – you can feel confident when you choose the payment method that will work best for you and your financial goals. 

And if you need a support system along the way, then join us at Arro. We will give you the financial confidence and control you are looking for.