You’re at the checkout. How do you pay for your purchase? Do you reach for a credit card, debit card, cash, check, or some form of electronic payment, such as a mobile wallet or wearable?
The Federal Reserve Bank of San Francisco’s 2018 Findings from the Diary of Consumer Payment Choice (DCPC) found participants preferred to pay
using debit cards. The order of payment preference was like this:
Payment Type Preference
Debit cards 42 percent
Credit cards 29 percent
Cash 24 percent
Check 2 percent
Other methods 2 percent
PrePaid 1 percent
Here’s an interesting side note. The more money a household earned, the more likely they were to pay by credit card.
HH Earnings Credit Debit Cash
$25,000 - 49,999 13 percent 29 percent 36 percent
$50,000 - 74,999 19 percent 31 percent 27 percent
$75,000 - 99,999 21 percent 29 percent 31 percent
$100,000 - 124,999 30 percent 23 percent 24 percent
$125,000 or more 33 percent 21 percent 24 percent
The shift in preference begs the question: Do wealthier people have more debt? Some do, but wealthier households are more likely to pay off credit card debt each month, according to author Tom Corley who was cited by Credit.com writer Gerri Detweiler.
If you use credit cards frequently and haven’t been paying down your balance each month, it may be a good idea to do a simple calculation to determine how much you are paying in interest each year. Just multiply the interest rate you pay by the amount of debt you carry. The amount may surprise you. Nerdwallet’s American Household Credit Card Debt Study reported, “Households with revolving credit card debt will pay an average of $1,141 in interest this year.”
If retirement is 10 years in the future, saving $1,141 a year, and earning 6 percent annually on the money, could provide about $16,000 in additional savings. If retirement is 30 years away, you could increase your savings by about $96,000. It’s food for thought.
*This is a hypothetical example and is not representative of any specific investment. Your results may vary.
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