Cards carrying bigger pay load
Do you roll your eyes in the checkout line when someone pulls out a card to pay for a candy bar or pack of gum? Get used to the feeling.
While 58 percent of Americans still use cash for small purchases, a growing share say they whip out a credit or debit card even when spending less than $5, according to a CreditCards.com survey of 616 people with major credit cards.
About 38 percent of people surveyed said they used credit or debit cards for small purchases, up from 33 percent in 2014, the survey found.
“Every sign seems to indicate we’re moving farther and farther away from cash, and it seems like things like mobile payments will only end up accelerating that,” said Matt Schulz, senior industry analyst at CreditCards.com.
For consumers — particularly millennials who didn’t grow up with the habit of carrying cash like their parents or grandparents — the convenience of cards is hard to beat, said Credit.com expert Bob Sullivan.
According to the survey, 46 percent of 18- to 29-year-olds said they used debit cards for small purchases, 18 percent used credit cards and only 36 percent used cash.
“There used to be a stigma to using plastic to make small purchases, but that’s clearly gone,” Schulz said.
Some credit card experts said the shift away from cash isn’t a bad thing, but that the survey results suggest some spenders aren’t picking the right kind of card. The growth in the share of Americans using plastic for small purchases between 2014 and 2016 came entirely from people using debit cards, while the share using credit cards to pay for items under $5 was flat at 11 percent, according to the CreditCards.com survey.
Millennials’ preference for debit cards could be driving some of that growth, Schulz said. Many already have student loan debt, came of age in a recession and don’t want to take on a new kind of debt with credit cards, he said.
But treating a debit card like cash is “generally a terrible idea,” said Sullivan, who advocates keeping them tucked in a wallet except during ATM withdrawals.
Although consumer protection measures have made it harder to get hit with a fee for overdrawing a bank account, “the $5 hamburger that can cost $40 is still a real risk,” Sullivan said.
Fraudulent transactions can also be more problematic with debit cards than credit cards, experts said. A fraudulent credit card charge doesn’t need to be paid immediately, and companies usually reverse disputed transactions, while a customer whose debit card is targeted may be liable for a portion of the fraudulent charge and doesn’t have access to stolen money until the case is resolved, said Sean McQuay, credit card expert for NerdWallet.
Debit card users may also be missing out on rewards, experts said. An increasingly competitive credit card market has made rewards programs more lucrative than usual for customers who don’t carry a balance, while debit cards with rewards are increasingly rare, Schulz said.
Even if the dollar amount a typical customer earns in rewards isn’t huge, as long as someone pays the card in full every month, “it’s essentially a debit card that also gives you rewards,” McQuay said.
Sullivan said consumers should be wary of making small charges on either type of card, since it can make it harder to stick to a budget.
“When people thoughtlessly swipe, swipe, swipe, it’s less tangible and they often don’t understand how much they’re spending,” he said.
Lots of small charges can also make it harder for customers to spot fraudulent transactions. A “bad guy” with a stolen card might make a small purchase to test that the card works before racking up big charges, Schulz said. Sullivan said some skip big purchases entirely, hoping many $10 or $20 fraudulent charges will go unnoticed over time.
But others said putting even tiny purchases on credit cards can be a smart idea.
While some people might struggle to keep spending in check when they can’t see a shrinking stack of bills in their wallet, others might find the record of purchases that comes with a credit card helps them budget, McQuay said.
Small everyday purchases add up more quickly than big-ticket items, so customers whose credit cards offer rewards and don’t carry a balance are missing out by not charging those items, he said.
And despite worries about credit and debit card fraud, both offer more protections than cash, which once stolen is nearly always gone for good, Schulz said.
Experts said they expect the greenback may keep losing market share to plastic, mobile and online payments, but that doesn’t mean it’s going away.
“Merchants still pay fees for debit and credit card acceptance,” McQuay said. “For the foreseeable future, cash will be part of the mix because of the cost of accepting anything else.”