Short answer is neither. I had a great discussion with one of the Ducks about this (I wonder if I can use first names or initials? Hmm… I guess I’ll ask!) And how funny to check in over at The Simple Dollar and see that Trent has posted about this same exact thing!
My plan for using credit in the future is to get all the benefits and none of the drawbacks. Once I’ve eliminated my balance, I’m going to get one really good rewards card that earns rewards that I can truly use and benefit from. I’ll use that instead of my check card to get rewards but track as if it was coming out of my account. That way, I can pay it off at the end of the month. I have spent so much needless money on credit card interest, I never want to pay a cent again, if I can help it. I don’t have much fear that I will spend more than I would otherwise because I use my check card for 95% of all my spending as it is – I have to keep track of my spending in the abstract anyway. Cash goes like water for me so I certainly would never go to an all-cash system.
This doesn’t mean that I’m going to be super rigid, though. Even now, I allow myself wiggle room. I have a B of A “keep the change” saving account (not the one with the $1000 – that’s ING) that gets $75 of regular transfers throughout the month, the rounded change, plus any money left over in my account when my next check clears. I use that like a slush fund – if I want to buy something that I can’t quite afford, I think about it hard and then if I really really want it, I just transfer over from savings. I use that account like a credit card. The transfers are instant since they’re at the same bank as my checking account (unlike from ING which takes a few days – a good thing to help prevent me from frivolously raiding the E-fund).
So basically, I’d rather use my own savings as backup than carry a balance on a card. It’s like a prepaid credit card except the money’s earning me interest when it’s just sitting and waiting instead of the other way around. That’s not to say that I think having a bit of a balance on a card is “bad”. It’s just all about figuring out your comfort level and working within that. Finding some way to keep on top of it and keeping it within a range that feels safe to you is what it’s all about.