Which Payment Type Can Help You Stick To A Budget?

Which payment type can help you stick to a budget?
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Thanks to advanced technology, there are many payment types out there when it comes to spending.

However, more is not necessarily better as not all payment methods can help you stick to a budget.

So, which payment type can help you stick to a budget?

It depends on your spending behavior and financial personality. All payment types have pros and cons.

In this post, we will look at the advantages and disadvantages of each payment option, so you can see which payment type is best to stick to a budget based on your personal circumstance.

Which Payment Type Can Help You Stick To A Budget?

Pin it for later and find out which payment type helps you stick to a budget.

Which payment type can help you stick to a budget?

Payment Type 1. Can Using Cash Help You Stick To Your Budget

Cash-based payment is popular among people who are struggling with overspending and saving.

Many people have financial success with the help of the old school budgeting method – “the cash envelope system.”

The budgeting system works like this. 

You divide your spending into different categories (e.g., rent, groceries, clothing, entertainment, and household essentials).

How much you want to spend on each category will depend on your lifestyle and financial situation. 

Once you decide the number, you will withdraw the amount from your checking account. Then place the budgeted cash in each labeled envelop. 

That’s the money you will spend for the whole month.

If there is extra cash by the end of the month, you can save it to give your finances an extra boost.

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Benefits Of Using Cash

Using cash brings many benefits to your wallet. Let’s have a look at some.

  • Paying with physical cash can help limit your spending and avoid debt as you can only spend the designated amount of money. When you run out of money, you need to wait till your next “cash payday.”
  • You can’t make purchases online, avoiding excess spending.
  • You also won’t be charged by automatic renewals of your premium memberships or subscriptions.
  • According to Psychology Today, the feeling of paying with cold hard cash can be painful, which could create an unpleasant experience and reduce spending. You might also think twice before purchasing because of the negative emotion.
  • There is less risk in terms of identity theft when paying with cash.
  • You don’t have to worry about interest rates, maintenance fees, annual fees, or overdraft fees using cash. 

Drawbacks Of Using Cash

Although using cash has plenty of advantages, it has its disadvantages. 

  • Carrying lots of cash is not that safe, especially when making large purchases. 
  • It’s inconvenient when stores don’t accept cash payments.
  • Your paper money might be stolen, lost, or destroyed by any chance. 
  • You need to find a safe place to store cash. 
  • It’s not fun to carry small changes and coins in your pocket. 
  • You will need to collect receipts and manually record each transaction as cash won’t connect to online budgeting tools or apps. 

Payment Type 2. Can Paying With Debit Card Help You Stick To Your Budget?

A debit card is like an electronic version of cash that could help you stick to a budget, as you can only use the money you have in your account. 

However, you need to be careful with overdraft fees.

Benefits Of Paying With Debit Cards

  • You don’t have to carry lots of cash when shopping.
  • You can shop online and make recurring payments (e.g., utility bills), significantly improving productivity and efficiency.
  • Using a debit card is safer than carrying loads of cash on the street.
  • You can use an online budgeting tool/app to track your spending, which helps you stick to your monthly budget.
  • You can set the spending limit and opt out of overdraft coverage so that you won’t blow your budget. 

For example, if your monthly spending limit is $1,000, you can’t spend more than that. Otherwise, the transaction will be rejected. In this case, you will think more carefully about where you want your money to be.

Drawbacks Of Paying With Debit Cards

  • The overdraft fees might occur when a transaction exceeds the available balance.

We all know it’s essential to track the spending to stay on track, but in reality, many might not check out balances regularly.

And if we accidentally make a purchase without sufficient funds, the bank will charge overdraft fees and interest, which can get expensive.

  • Unlike credit cards, most debit card companies don’t offer rewards.
  • It won’t help build your credit score. 
  • It could be inconvenient to pay for the unexpected costs when there is no extra money in the account. 

Payment Type 3. Can Using Credit Card Help You Stick To A Budget?

A credit card can help you stick to a budget if you use it responsibly. 

In other words, if you are a mindful spender and enjoy the conveniences, a credit card could be a good friend to help you reap all the benefits.

Benefits Of Paying With Credit Cards

  • It’s convenient to pay bills by swiping the plastic card. 
  • The credit card statement gives you a clear idea of where your money is going. 
  • You don’t have to wait for your next paycheck to make large purchases, provided that you can pay back in full by the end of the billing cycle. 
  • If you are a responsible credit card user, you can build your credit history with a decent credit score, which could help you get better rates when taking loans on big-ticket items (like a house or a car) in the future.
  • Depending on your credit card type, you can get cash back, miles, points, gift cards, and many other perks. 

According to Bankrate, 40% of Americans said cash back is their favorite credit card feature.

If you can earn cash back on every purchase you make, you are saving money by using a credit card, leaving more wiggle room for your budget. 

  • You will have more cash flow in your bank account by using the future money.
  • It helps to pay unexpected bills (e.g., major repair bills or emergency pet care) when you don’t have a cushion of savings yet.

Note that it’s NOT ideal to borrow money for financial disasters.

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💡 Important: Make sure you know how your credit card charges beforehand (e.g., interest rate and other financial charges)

Disadvantages of Paying With Credit Cards

  • The concept of “buy now, pay later” encourages people to spend more than they can afford, which is not suitable for overspenders.

It’s even easier to go over budget during holiday shopping seasons (like Christmas). 

Fox Business reports that 70% of Americans go over budget during the holidays. 

Also read: How To Create A Christmas Budget In 7 Easy Steps

If you spend mindlessly and can’t pay back the full balance before the next billing cycle, you will end up with piles of credit card debt. 

On top of that, you also need to pay a high-interest rate on any outstanding balance.

It’s forecasted that the credit card interest rate is going up this year (16.15% in 2021). In other words, your debt is becoming more expensive. 

Surprisingly, a new survey shows 40% of Americans who have credit card debt don’t know their interest rate. (CNBC

  •  If you fail to make the minimum payment on your debt, your credit score will suffer, which makes it more complicated and costly to borrow in the future. 
  • Unlike paying with cash, the plastic card could cause a false impression of not spending much as you do not physically see the money slips through your finger.
  • You might lose track of your spending and miss the payday sometimes, leading to late fees. 
  • You need to actively check your credit card statements each month to ensure you stay within budget.

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Why Is It Difficult For People To Stick To A Budget?

People fail to stick to a budget for various reasons. 

Here are a few.

The payment type you are using is not working to your advantage. 

This is probably the most common reason to bust a budget.

For example, if you have accrued heavy credit card debt, consider other payment types to put yourself in a better financial position.

You don’t have clear financial goals in mind. 

Why do you want to budget your money (e.g., saving for a car purchase or paying down debt)?

Without a realistic money goal, you will be less likely to stick to a budget.

Your personal budget is too strict.

You forget to budget the fun money, making it hard to follow.

On top of that, you are more likely to fall into the pre-budgeting spending habits with an unrealistic budget. 

The budgeting process is complicated. 

Let’s face it. Budgeting is not the most fun part of money management.

And if the process is too complicated, the chance of sticking to it is slim.   

Related post: How To Create A Budget In 6 Easy Steps

You are not reviewing your home budget.

How do you know you are financially healthy? 

The answer lies in your budget. 

Review your budget regularly to know where you stand financially and make adjustments when your financial circumstance changes. 

You won’t stick to your budget if you don’t actively monitor it.

Your budgeting method doesn’t work for your situation.

If your current strategy doesn’t work out, it doesn’t make sense to stick to it.  

There are many popular budgeting methods out there, such as the 50/30/20 budget rule and the zero-based budget.

It might take some time to figure out which method works the best for your circumstance.

Keep experimenting.

Why Should You Stick To A Budget At All?

To put it simply, you can save more, earn more, and live more by sticking to a realistic budget.

Whether you want to get out of debt fast or achieve financial freedom, following your budget could help you curb overspending and reach your financial goals.

Which Payment Type Is Best If You Are Trying To Stick To A Budget?

Like budgeting methods, the best payment type is whatever helps you stick to a budget and get your finances on track.

For example, if you want to get out of debt, master spending control, and save money, consider using a combination of payment types (cash and debit card), as only using one of them might not be practical in this modern world. 

However, if you are an expert budgeter and can pay your balance in full every month, a credit card is a great payment type to support your spending plan.

A good rule of thumb is to save more and spend less during your financial journey.

🌟 Last Tip: Self-discipline and determination are needed if you want to stick to your budget.

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Which payment type is best if you’re trying to stick to a budget?
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