Rosie Bannister is the Starling money agony aunt. Send your money questions to:

Hi Rosie,

Wondering whether you'd generally suggest spending on a credit card, debit card or with cash? I am lucky enough to be able to pay my credit card off in full each month - but seem to use it more often.

Spending with cash seems to make me think twice - and sometimes stops me. And a debit card takes money out of my bank account straight away - so I see that quicker than a credit card. Are there any other things I should think about?

You’re off to a great start because you’ve got a credit card that you’re managing well, and are clearly thinking about the different ways to spend and how you feel about them. When it comes to choosing how to pay for something, a lot of it comes down to personal preference. But there are pros and cons of all types of payments - I’ll give you the lowdown on the different ways to splash your cash.

The different options

It looks like you’re clued up on your options already, but for anyone reading who’s unsure: when it comes to spending money, there are three main ways you can do so: credit card, debit card or cash.

First up, a credit card is a standalone product where you’re given a ‘credit limit’, a total amount you’re allowed to borrow. You can do your spending on it, then pay it back later - take long enough and you’ll be charged interest, but there may be ways to avoid this.

Debit cards are connected to your bank account, and when you spend on them the money is taken straight from your account. Cash of course is cash and needs no explanation.

In the UK, debit cards are the most popular way to spend, having overtaken cash in 2017. Indeed, some businesses have even stopped taking cash completely (but that’s a story for another day) - meaning sometimes you’ve no choice but to spend on plastic.

Each way of spending has its own merits and pitfalls...

Credit cards - get boosted protection, but risky if you don’t use them right

If you’ve never had a credit card before, it can be a bit of a daunting concept. Friends of mine refuse to get one because they don’t trust themselves to manage it well.

That’s something worth considering, because if you don’t manage them well credit cards can be full of nasty surprises such as high interest rates and fees for paying late or going over your credit limit.

You’ve got it spot on by paying off your credit card in full each month. The best way to do this is to set up a direct debit so you don’t need to think about it. By clearing it in full, you pay no interest and won’t be stung by charges.

There are lots of benefits to credit cards:

  • They build your credit history. As long as you manage them well, ideally by paying them off in full, this will build up your credit history and increase your chances of getting accepted for other credit like a mortgage.

  • You could be rewarded when you spend. While offers aren’t as great now as they were a few years ago, there are still some cards out there which give you cashback or loyalty points every time you spend. This can add up to a few hundred quid a year back if you’re a big spender.

  • Purchases have extra protection. There’s a law which says that when you pay by credit card for something costing more than £100 and up to £30,000, your card provider is equally liable if something goes wrong. This is called ‘Section 75’ protection. Though it’s worth noting Section 75 doesn’t always work if there’s a third party payment processor like Paypal.

You can also link your credit card to your mobile wallet and use things like Apple and Google Pay. A lot of people like the ease that this brings, but as you say it can also make it easier to spend without thinking about it. And don’t forget you need to pay it back!

Seeing as you find yourself spending more often with a credit card, one of the other options may be better for you in terms of controlling your outgoings - just be aware you won’t get the benefits of a credit card. Perhaps you could take cash if you’re going out and want to stick to a strict limit but use your credit card for more everyday purchases?

It’s also worth noting that you shouldn’t withdraw cash on credit cards. You could be charged interest from day one, and there are often extra fees just for making the withdrawal.

Debit cards - harder to spend money you don’t have, but generally no rewards

As you’ve said, while credit cards let you pay them off monthly, with a debit card the money usually leaves your account straightaway.

This means you don’t run the risk of finding yourself with a credit card debt at the end of the month that you want to pay but can’t afford to clear. Although bear in mind if you have an overdraft facility you can still dip below zero balance in your account.

With debit cards, you won’t be charged interest unless you dip into your overdraft, which some people may find more comforting. Though remember, as long as you pay back your credit card debt in full every month, you won’t be charged interest on that either.

Like credit cards, you can also use debit cards on your mobile. Plus, banks like Starling give you instant notifications and also categorise your spending which can help you to budget and see where your money’s going.

And both debit and credit cards are good for you if you don’t like a pocket full of coins or carrying round a purse or wallet with notes in.

Cash - good for controlling spending, but lose it and it’s gone forever

It sounds like for you, using cash is a way to make you stop and think before making a purchase. Indeed, cash can be a great way of controlling what you spend - go on a shopping trip with £30 in your pocket and no cards and there’s no risk of you splurging on that £100 coat, for example.

It might sound a bit old school, but if you really wanted to limit your spending you could withdraw a certain amount of cash at the start of the week and only let yourself use that.

Remember though that if that tenner falls out of your bag/wallet/pocket then there’s no chance you’ll get it back. Drop a credit or debit card and you can cancel them straight away, rendering them useless and protecting your money.

Ultimately, you need to decide what works best for you. Hopefully the above has given you some food for thought about the pros and cons of each type of spending.

The above is intended as general information and does not constitute advice in any way. You should take independent advice if you have any questions about your specific circumstances.

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