Card use leads to less cash production

U.S. Treasury slows printing money as Americans increasingly prefer plastic.

Americans are using their debit and credit cards to make purchases far more often these days than they did in the past, and as a result, the federal government has seen fit to drastically decrease production of paper currency.

Increased credit and debit card use has prompted the U.S. Treasury to scale back when it comes to printing paper money. According to a New York Times article, the production of $5 bills has dropped to the lowest level in 30 years, while $1 bill production is at an all-time low. Even more telling, no $10 bills have been printed this year.

“Decreased cash spending isn’t necessarily a bad thing because credit offers several advantages in purchasing,” says Gary Herman, President of Consolidated Credit. “You create a record of transactions, avoid fees with withdrawals at out-of-network ATMs, and can earn valuable rewards or cash back. On the other hand, using plastic for everything is likely to increase costs with interest charges and fees, and it puts families at a higher risk for financial distress.”

The risk of everyday purchases put on credit cards

The biggest problem using credit cards for every purchase creates is the potential for a continuous cycle of debt that never actually gets paid off in-full. As a result, interest charges would be added for every transaction made.

“If you pay off your balances in-full every month before the end of the grace period, then you avoid the application of interest charges on the purchases you made that month,” Herman explains, “but that only applies if you start the billing cycle with a zero balance. So if you’re carrying a balance over from month to month, then every purchase you make will have interest charges applied. Daily expenses will essentially cost you more.”

Herman advises that people who prefer to use credit cards for every purchase must ensure that those balances get paid off in-full every month. Essentially, monthly spending can be put on plastic without an issue, but income should be allocated in the household budget to ensure the balances are eliminated in-full every time.

“As long as you’re paying off everything within the same month before the end of the grace periods detailed in your credit card statements, then you can use credit cards daily without an issue,” Herman affirms. “However, if you start to let balances carry over month after month, then using credit for daily purchases many actually be hurting your bottom line.”