About 80% of what Canadians spend goes on debit or credit cards. That’s according to a new discussion paper released last week by the Bank of Canada. Participants in a three-day study reported that their average debit card transaction was $51.30. The average credit card purchase was $84.40.

Why Is Cash (Still) So Entrenched? Insights from the Bank of Canada’s 2009 Methods-of-Payment Survey reports that cash still dominates when it comes to low-cost purchases. Measured on a volume basis, 53.8% of transactions were carried out in cash. In fact, 70% of transactions under $25 were done sans plastic. The average reported cash transaction was $16.90.

None of this is particularly surprising. Most of us carry enough cash to cover small transactions. And rightly or wrongly, it still feels funny when someone pulls out a debit card to pay for a coffee. But these method-of-payment decisions are more than just a matter of convenience. How we spend affects what we spend, perhaps more than we realize.

Henrietta Ross, chief executive officer at Canadian Association of Credit Counselling Services told me that too many consumers don’t recognize the costs associated with plastic. “They don’t read the fine print,” she said. “They often surprise themselves when they see how much of their spending is going towards fees and hidden costs that they don’t think about.”

Here are four things to think about next time you pull out your wallet:

  • Withdrawal fees. It costs money to use cash. Depending on the plan you have with your bank or credit union, there can be automated teller machine (ATM) fees when you make too many withdrawals in a given time period or if you withdraw from a competitor’s ATM. The most expensive are often those independent ATMs that always seem to be right where you need them.
  • Overdraft fees. You can face these as a result of withdrawing too much cash obviously. But debit card users can be vulnerable too. Keep track of your account balance, or you may find yourself in what’s politely called overdraft protection. “This is an area where consumers can really get hurt,” said Ross. “A financial institution puts them into overdraft protection and there are large fees associated with that.”
  • Transaction fees. Research the plans your financial institution has available. Make sure you’ve chosen one that’s in line with how you use cash and debit cards in particular. Some plans provide unlimited transactions for a flat fee; others offer a lower fee but provide only a certain number of “free” transactions. It’s worth a call to your bank or credit union if you’re unsure.
  • Interest rates. This one almost goes without saying. Credit card companies charge a wide range of interest rates when balances aren’t paid in full at the end of each month. Shop around. And if you’re in a spot where you don’t expect to be able to cover your full credit card payment next month, consider the added cost of interest charges before making another credit card purchase.

One additional tip from Ross: Make a list of all your credit and debit cards, the account numbers, PINs, etc. and put it in a safe place. If your wallet is lost or stolen, it’s important to contact your financial institutions as soon as possible so that they can shut down your cards. That prevents criminals from gaining access to your accounts.