Toni-Ann Neita, Staff ReporterYour decisions don't end when you make up your mind to buy a product or service. Next comes figuring out the best way to pay. Humans have come a long way from the bartering system of the past. Gone are the days where one could fetch two spears for a cow hide.
While it is still possible to exchange one product or service for another, more often than not it is cash, or some 'substitute' for cash like a credit card, that is "running things".
Every payment method, whether it be cash, cheques, credit cards or debit cards, has its virtues and shortcomings which can cause you to give it the label: 'Best way to pay'. Of course, much depends on your financial 'style' (if there is such a thing) as well as the specific situation.
It is always a good idea to understand your rights and potential risks and benefits when it comes to the most common way to pay for things. That way, you can make a more informed decision the next time you are making a purchase - rather than just whipping out your credit card (or whatever it is that you normally do).
Cash, cheque, credit card or debit card? The answer is cash by far. Studies have estimated that an estimated 50 per cent or more of the total transactions in the world involve cash; cheques being the second most popular form of payment accounting for about 72 per cent of the non-cash transactions. cash and cheques are far ahead of credit cards, which came next in the rankings, followed by debit cards which are gaining in popularity.
Cash
Cash, bills or notes and coins, are familiar, easy to get and easy to use. Best of all, the basic consumer payment in cash is simple, involving no fees, security numbers, ID checks or other time-consuming steps that one may encounter when using other means of purchase.
"Cash is usually the cheapest way to go - no fees, no interest payments, no service charges," says one elderly gentleman who says he can't bother with the 'modern' alternatives to making payments. "I deal strictly with cash. I just don't trust this credit card thing, or even cheques for that matter. I like to see my money."
Many Jamaicans share a similar sentiment. However, what they fail to realise is that although they will be able to see their money, it will disappear without a trace. What I mean by this is that, when making cash payments, if you fail to keep good records and receipts, you will not have a paper trail to help resolve disputes or help you keep track of your spending for money management purposes. Also, cash can easily be lost or stolen. As the saying goes: "Finders keepers, losers weepers".
Another risk with cash is that you cannot stop payment (as with a cheque) if you encounter a problem with the person or company that sold you the goods or service; Once money leaves your hands and goes into the hands of another, it is hard to get it back.
However, cash continues to be popular. What else makes cash popular? Firstly, it is accepted by other consumers as well as by all merchants, including businesses that won't always take your cheque or credit card. The merchant can immediately use the cash for other transactions or deposit the cash at the bank with hardly any hassle. Secondly, you cannot get into debt using cash because it is money you already have (assuming of course that it is your own, rather than borrowed, cash). Finally, if privacy is a concern, cash allows you to pay for something anonymously.
Personal cheques
A cheque is also familiar and fairly easy to use. It is essentially a written representation of cash - an order instructing your bank to pay a particular person, store, business and so on, a specified sum of money, using funds in your account at that bank. It usually takes a few business days before the money is actually transferred from your account.
Cheques are routinely accepted by merchants with exceptions, of course, since an increase in cheque forgery and the risk of cheques bouncing have made some wary of this form of payment. Also, as with cash, cheques are also widely accepted by other individuals.
The major pluses of using cheques include not having to walk with cash and the fact that cheques create a paper trail that can be followed if there is a dispute over who got paid, when and how much.
Cheques too are at risk of being stolen, but unlike cash they are not as easy to use when stolen. However, it is still wise to take simple precautions to keep thieves away from your cheques and prevent unauthorised transactions. For example, keep extra cheques in a secure place and don't carry more cheques than you need. If you lose your cheque book, you can tell the bank to cancel your cheques so that no one else can spend your money.
In short, it's much safer to write a cheque than carry cash.
Cheques are also good for people who are not comfortable with newer forms of electronic payment such as debit cards.
Cheques are not without drawbacks. The major drawbacks of personal cheques is that they are not always accepted, there is a service charge for using cheque books and no interest is gained on money in some chequing accounts.
Some words of wisdom to make your chequing experience more rewarding, is that it is important to properly and responsibly manage your chequing account. Always keep your cheque book balanced so that you do not mistakenly overdraw your account (which can result in fines and damage to your financial reputation). Also, do some comparison-shopping to make sure you are getting a good deal on your chequing account, in terms of fees, minimum balance requirements, and so on.
Credit cards
When you use a credit card it is very much like taking out a loan. They are sometimes referred to as 'plastic money'. You can use the credit card to buy things now and pay for them later. In return for this privilege, you may pay interest and fees.
For those not as versed in credit card use, it is quite simple. How it works is that you will be told by the card issuer, which is generally a bank or other financial institution, the maximum amount that can be outstanding at any one time: your credit limit. You will receive a monthly statement detailing what you have spent, what you have paid and what you owe.
If you do not pay off the bill completely by the date shown on your statement, you will be charged interest until it is paid in full.
When you present your card as payment at, for example, a retail store, the cashier will contact your card issuer through the card network to verify your account number and expiration date, but most importantly your credit availability. Please keep track of your credit because it can be very frustrating and embarrassing to have one's card denied.
Since with credit cards you can buy now and pay later, they are a very good payment option when you want to buy an expensive item, such as a computer, and you want to pay for it over time, even if it means incurring interest charges.
Often people wonder if they should use their credit card for small everyday living expenses, such as groceries. The best answer to that question is that if you are going to pay off your credit bill each month, and you can do so without incurring an interest payment, then using your card for these types of purchases may be a convenient way to consolidate your payments. If not, you would probably be better off using cash, cheques or debit cards because those small purchases could end up costing much more once interest payments come into the picture.
Credit cards are less bulky and safer to carry than a large amount of cash, and they are especially helpful in emergency situations. Credit cards are also fairly easy to replace if lost or stolen, even when you are far from home. The same cannot be said for cash or cheques.
Credit cards are also easy to use and widely accepted. They are often the payment method of choice when making purchases on-line, over the telephone and through the mail. They are not accepted by individuals and some small businesses, however.
Isn't it amazing, that in the high-tech world of electronic commerce, a low-tech piece of plastic - the credit card - drives most business-to-consumer transactions?
The biggest problem with credit cards is that the interest charges, fees and penalties can add up, especially if you don't understand how the card works or if you are careless. The credit card is arguably one of the best innovations of the 20th century, but you have to be smart in how you use it. Remember, there is always the potential to become drowned in debt, from credit cards or any other loans.
Debit cards
Debit cards look like credit cards but work more like electronic cheques because the money is deducted directly from your chequing or savings account.
Usually, the sole requirement to obtain a debit card is a bank account.
These types of cards allow you to do the same things at an Automated Banking Machine (ABM) as you would at a bank. They provide a convenient way to get cash, make deposits, and make balance inquiries, 24 hours per day, seven days a week.
ABMs facilitate both credit and debit card transactions.
The magic does not end there. Debit cards can be used to make purchases in almost every store, where they are known as Point of Sale (POS) transactions, making them increasingly popular as a payment option.
Debit cards have most of the same benefits as credit cards (convenient, safe, less bulky) but are more straightforward and less hassling to use. Using them is also faster and easier than writing a cheque.
Banks are businesses and they have to make money. So, like credit cards and cheques, banks charge fees for using debit cards. The charges for use vary from bank to bank and from where and how you use it. For example, if you use your debit card to withdraw money from an ABM at your bank's location you are often charged less than if you use your ABM elsewhere.
If you use the card a lot, the fees can add up quickly. Look for ways to minimise charges by using your own bank's ABM and drawing extra cash to reduce the frequency of your trips to ABMs.
