After hackers breached computer systems at Target, Neiman Marcus, Michael’s and the hotel management chain White Lodging and stole millions of Americans’ credit card numbers, many people wondered if they should stop using credit cards and start using cash.
The question everyone should ask themselves, though, is why they started using credit cards in the first place, and whether those reasons are valid today.
There are many upsides to using credit cards, first of which is sheer convenience: fewer trips to the bank, little need to have the exact amount in your bank account at the moment of purchase, no change to count and no need to figure out what to do with those pesky pennies.
For many, the convenience of not needing cash for daily purchases can cut both ways: Acquisition ecstasy can trump reality (at least until the bill comes). There’s the temptation to spend more than you should or more than you have.
Most cash-versus-credit arguments illustrate these trade-offs. Avoiding credit cards makes you less vulnerable to identity thieves targeting retailers, but carrying cash makes you more vulnerable to burglars and pickpockets with none of the fraud protections offered by most banks and credit card companies. Once your cash is in someone else’s pocket, it’s gone.
While you might feel uncomfortable at the thought thieves could potentially access your credit, it’s hard to imagine that anyone feels comfortable enough to walk into Best Buy with enough cash to buy a TV.
Using cash exclusively means you won’t ruin your credit by racking up bills you can’t pay (or can’t pay on time), but it also means you put yourself at risk for having no credit report at all, which for many lenders is akin to a bad score.
Furthermore, as those of us who have already broken our New Year’s resolutions know, changing daily habits takes a lot more than just the desire to change. Switching from one extreme (paying for everything with credit cards) to the other (paying for everything with cash) is the sort of change anyone would find hard to maintain. Like most things, try it in moderation.
If you want to start using cash more often because you want to improve your credit score or pay down debt, don’t go cold turkey on your cards. Set up a few monthly bills to auto pay so that you don’t lose access to existing credit. Leave your cards at home except when you’re making a big purchase. Use cash for those everyday expenses, or skip them entirely.
But if you’re thinking about switching to cash because you’re worried about identity theft, try this: Take five minutes each day to check your bank and credit card accounts online (using a secure Internet connection) to make sure every transaction you see is yours, and monitor your credit for unexpected changes.
Adam Levin is chairman and co-founder of Credit.com.
