Spending smart isn't just about what you buy, but how you pay. Often that decision is based on the same question you're asked about grocery bags at the supermarket checkout: paper or plastic?
Paper includes cash and personal checks, while plastic includes debit and credit cards. Which should you use?
In the end, the answer mostly depends on how disciplined you are with money.
Here are some pros and cons of each type of payment, along with a tip you might not already know.
Pros: You won't incur credit-card finance charges and you can track spending in the checkbook register.
Cons: Checks are the most inconvenient form of payment because it takes time to fill out a check, you have to pay for and reorder blank checks, and some merchants don't accept personal checks. Any "float" time you receive between writing the check and money being taken from your account has shrunk markedly with electronic processing of checks.
More problematic is that checks are at the most risk for fraud and identity theft. Most everything a thief would need is on your check, from your name and address to your bank account number to possibly your driver's license number.
Tip: Check washing is a scam in which a thief steals a check and chemically erases - or washes - the payee and amount, fills in new payment information for himself and cleans out your bank account. You can avoid check washing by using special pens, such as the Uni-ball 207 gel pen, which retails for about $2.
Pros: Studies suggest consumers spend less money when paying with cash than plastic. That's logical, because most people suffer a direct and immediate pain from handing over greenbacks that they don't experience when whipping out the plastic. Using cash could help you curb impulse spending. Cash has no finance charges.
Cons: You may have to pay ATM withdrawal fees or go to the bank to obtain cash. And there is no automatic record of spending that you get with credit-card bills, canceled checks and bank statements. In the rare occurrence of a mugging, you lose all your cash, as opposed to having to cancel credit or debit cards or close a bank account.
Tip: Nowadays you can withdraw more money from an ATM than you have in your account. Banks call it "courtesy overdraft protection." They give you more money than you have in your account and then slap you with an overdraft fee of $20 to $40 and impose high interest charges on the money they have advanced.
This also is offered for overdrawing your account by personal check or debit card. To avoid overdraft fees and interest charges keep track of spending and obtain real overdraft protection, where you instruct the bank to dip into another account, such as savings, when a checking account is overdrawn.
Pros: A debit card, also known as a check card, is a more convenient form of cash or personal check. You use it like a credit card, but the money comes immediately out of your bank account. Most double as an ATM card to make cash withdrawals.
Debit cards are widely accepted, are easier to use than writing checks, provide a record of spending and avoid the risk of finance charges. Some debit cards provide rewards.
Cons: Debit cards are not afforded the same fraud protections under federal law as credit cards. With a stolen credit card, you can lose no more than $50 out of pocket. With a debit card you must report it within two business days to receive the $50 liability limit. Otherwise you're on the hook for $500, or after 60 days you could lose everything a thief steals from your bank account.
Individual card companies, such as Visa and MasterCard, have policies that promise to limit your debit liability to zero, but these policies are not as strong as federal law. And even if the bank eventually puts money back in your account - and it doesn't have to for at least two weeks - you could struggle to pay bills while you and the bank sort out the mess.
You'll have to decide for yourself whether less fraud protection under federal law is a reason to avoid carrying debit cards in lieu of credit cards. You can ask your bank to replace your debit card with an ATM-only card, so you still have ATM access to cash.
Tip: When using a debit card, choose to provide a signature rather than PIN - choose "credit" rather than "debit" - if your bank charges for PIN transactions or grants rewards points only for signature transactions. Either method subtracts money directly from your bank account.
Pros: With cash, checks and debit cards you're putting your money at risk in the transaction. With credit cards you put the bank's money at risk. You can dispute a charge, and the bank has to fight with the vendor. If a card is stolen you just report it, and your cash is not vulnerable.
Used well, the credit card is the only form of payment that builds your credit history so you can obtain lower rates on other products such as auto loans and insurance. Credit cards also provide the most perks, such as rewards cash, airline miles or merchandise points. Some offer extended warranties on products purchased with the card and other perks that vary among cards.
Cons: Credit cards carry perhaps the biggest downsides: Namely, consumers frequently spend more when they're spending with credit, and many incur outrageous finance charges that can be more than 20 percent.
Late-payment and over-the-limit fees are also punitive. Those disadvantages, if they apply to you, dwarf any advantages of credit cards.
Tip: Merchants can't require a minimum purchase for using a credit card. A provision in their agreements with card companies requires them to accept charges of any amount.
Gregory Karp writes for The Morning Call in Allentown, Pa.