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Cash vs. Credit Card: Which Should I Use?

Tap. Beep. Approved. Another $5 coffee charged to your credit card. That’s the third charge this week, but you figure pulling out your card is way easier than digging in your wallet for cash.

Sure, credit cards may seem more convenient. But what you probably don’t realize is how quickly those $5 swipes add up . . . and just how much your preferred payment method is actually costing you.

Which should you use? Cash or credit? It’s time to settle this debate so you can make sure you’re in control of your spending—and not the other way around.

Cash vs. Credit Cards: Which Should You Use?

If cash and credit cards went head-to-head in a boxing match, cash would definitely come out on top. Cash is king—even if it seems like we’re heading for a cashless society.

Now, when we say “pay in cash,” what we want you to hear is “pay in full”—which is the opposite of borrowing money. Paying in cash is more about the way you manage your money than it is about what you actually hand the cashier at the register. But there are definitely times when using physical cash (you know, those pieces of paper with presidents’ faces on them) works in your favor.

But before we get into all the reasons why cash reigns supreme, let’s take a look at why people tend to rely on credit cards more than cash.

Reasons People Use Credit Cards

Eight in 10 adults (84%) have at least one credit card.1 But like your mom said: Just because everyone’s doing it, doesn’t mean you should too.

Here are some of the most common objections we hear for why people don’t want to part with their credit cards.

1. Rewards

Despite the promise of fancy rewards, credit cards end up costing you more in the long run. How? Well, you’re tempted to spend more to earn more points, which increases your balance. The higher your balance, the less likely you are to pay it all off each month.

And between all the fees and insane interest rates, any money you would’ve “earned” in points is basically canceled out. Plus, it’s easier than you think to get caught up in a cycle of credit card debt all to chase air miles you’ll probably never use.

Also, you usually have to spend thousands on a credit card to get $100 cash back. And you don’t actually get to put a fresh bill in your wallet—it’s just more credit added to your account to keep you spending. See how sneaky this whole process is? The idea of cash back and credit card points may sound great, but it’s just a tricky way of getting you to spend more than you would have otherwise.

2. Travel

We hear it all the time: “I can’t travel without a credit card.” Uh, yeah you can! Your debit card will do just fine on your beach vacation or your business trip to Dayton. In fact, a debit card can do everything your credit card can do—except put you in debt.

Now, some hotels or rental car companies may put a temporary hold on your card in case of damages. (Don’t worry—you can still use your card. You’ll just see a pending charge on your account until you check out or return the car.) And as long as you’ve budgeted enough for your trip and have some extra cushion in your bank account, it shouldn’t be a problem. Just call ahead and ask how much the hold will be so you can plan for it.

3. Building Credit

One of the top reasons people open a credit card account is to build up their credit score. But have you ever stopped to think why you need to build your credit in the first place?

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Here’s how it goes: You borrow money to build up your credit score . . . to be able to borrow more money . . . to build up your credit score . . . to be able to borrow more money. It’s a never-ending cycle that gets you absolutely nowhere (kind of like that last season of Lost).

A FICO score is only useful if you play one game: the credit game. But guess what? If you never borrow money, you don’t need to worry about having the perfect credit score. In fact, you can live—and thrive—without credit. Yeah, we know that goes against everything your high school economics teacher said. But the truth is, you don’t need a credit card (or any form of credit) to survive.

4. Emergencies

But what if an emergency happens and I need to use my credit card? We get it. The AC breaks on the hottest day of the summer. The transmit-fuel-carburetor-thingy (you know the one) goes out on your car. And it always seems to happen when you’ve got zilch in the bank.

So, what do you do? You reach for the credit card—which only turns your emergency into a payment-induced nightmare. But if you had an emergency fund, you could just pay for the problem right then and there and not have to worry about paying it off later.

And it’s not scientifically proven, but we’ve found Mr. Mayhem tends to stay away when he knows you’ve got an emergency fund in place. Plus, it does wonders for your peace of mind.

5. Safety

It’s never fun when someone swipes your card number and goes on a shopping spree with your money (uh, rude!). And many people think using a credit card gives them more protection from these modern-day pickpockets. But that’s not necessarily true.

While you might be able to cancel fraudulent charges and get a new card, there’s a whole other threat you have to worry about—identity theft. And Dwight Schrute was right when he said identity theft is not a joke.

If someone manages to get your credit card account info (usually from online purchases), they can open up new credit accounts in your name, take out loans, and steal other personal data. And by the time you get your credit card statement the next month and notice all the fraudulent charges, the damage is already done.

Each time you swipe your credit card or type your card numbers in online, you increase the chance of having your personal info compromised. Raise your hand if you want to have your identity stolen. No one? That’s what we thought. Using cash can help you keep your personal information . . . well, personal.

The Benefits of Using Cash

So, now that we’ve gone over the pros and cons of credit cards (which are really just cons), let’s talk about cash. You know—Moola. Dinero. Bucks. Stacks. The green stuff. Dolla’ dolla’ bills, y’all!

Here are the reasons why it’s better to pay with cash.

1. You don’t have to worry about fees.

Think of those times you run into the dollar store to buy a few items . . . only to find out there’s a minimum charge to use a credit card. So, what do you do? You add a few packets of gum or a candy bar and end up spending more than you planned.

Or picture this: You spot the perfect tomato at your local farmers’ market. Farmer Joe takes credit cards, but because he’s a small business, he gets charged for each swipe. That means he’ll probably tack on a couple dollars to help cover the convenience fee (which isn’t very convenient for you, is it?).

Oh, and there are plenty more ridiculous credit card fees where that came from. But you can avoid all of them simply by using cash instead.

2. You avoid paying interest.

Spoiler alert: When you use a credit card, you’re not actually using your own money. You’re just racking up a tab you’ll have to pay back later. If you don’t pay it back in full and on time, you get charged interest (plus late fees). And in case you haven’t heard, the average credit card interest rate has reached an all-time high—20.4%!2

You know a great way to avoid paying interest? Paying with cash! You can buy what you need, without worrying about making payments for months to come and forking over the interest toll. It’s a win-win!

3. You spend less.

When you use a credit card, you have no real idea of how much you’re spending in the moment—because you get the bill later. But there’s something about physically handing over your hard-earned cash that makes you think twice before you spend it.

In fact, people tend to spend more when using credit cards than cash.3 And a study by MIT found credit cards “motivate spending by exploiting reward networks in the brain.”4 In other words, credit card companies know how you think better than you do—and they use this knowledge to control your spending habits and get you to make more impulse purchases.

Paying with cash means you’re more likely to not buy something and stick to your budget, as well as find ways to stretch your dollar, like shopping around and looking for sales. Watching those $20 bills leave your wallet or envelope system makes you actually think about what you’re spending—instead of just mindlessly swiping your credit card.

Another study found that those who pay with cash actually have a more positive relationship with the items they purchase.5 You’ll appreciate your brand-new transmission, reupholstered reading chair and even your kids’ Cap’n Crunch more if you pay with cash instead of putting it on a card.

4. You own, not owe.

Paying with cash keeps you from spending money you don’t have—which means you don’t owe anyone. And unlike credit, when you buy those new shoes with cash, you don’t have to worry about making payments on them or the interest coming back to bite you. You own those shoes. End of story.

With cash, if you can’t afford it, you can’t buy it. So, if you blow your grocery budget at the beginning of the month, you’re going to feel it at the end of the month. And when you realize you don’t have an endless supply of money at your fingertips, you’re more likely to change your spending habits. Trust us, seven days of tuna fish sandwiches may be the best overdraft protection there is.

5. You always have cash on hand.

Besides all the reasons we just mentioned, having cash on hand is always a good idea.

Think about all those times you wish you had some bills in your wallet: The parking attendant at the county fair only takes cash. Your favorite food truck doesn’t accept credit cards. You wait in line for that limited-edition concert poster, only to realize it’s “cash only.” You just found the cutest dress at a local boutique, but their card machine is down. You want to keep a gift secret from your spouse. You feel like you should give some money to the man on the street corner.

Or what if you’re in a real pinch? Like if you break down in the middle of nowhere and Bubba’s Tow Service only takes cash. You’ll really wish you had cash on hand then.

Look, it may not happen all the time, but do you really want to take that risk? Cash is still useful, and it can really come in handy—especially in an emergency.

What About Online Purchases?

We get it—many of us do most of our shopping online nowadays. In that case, a debit card will do the trick! It’s the only same-as-cash payment we approve of, and it’s just as secure as a credit card. Actually, debit cards are safer than credit cards because they won’t put you in debt.

But even if you use a debit card, don’t be fooled by those buy now, pay later scams when you’re scrolling through online stores. Installments may not be credit cards, but they can put you in debt just as fast—maybe even faster.

You Can Live Without a Credit Card

So, which should you use: Cash or credit cards? The winner is . . . cash! Ding ding ding!

Go ahead and say goodbye to those credit cards. Because the truth is, you don’t need them. In fact, you’ll find that life is a whole lot better without credit cards.

Look, we know you can’t pay for everything with actual cash. But using cash when you can—and more importantly, not borrowing money—makes all the difference in helping you spend less, stay out of debt, and stick to your money goals.

And if you really want to keep more cash in your pocket each month, you need a way to stay on top of your spending—and the best way to do that is with a budget. Yep, no matter your preferred payment method, budgeting is the best thing you can do for your finances.

A monthly budget shows you exactly where your money is going in real time and keeps you from breaking the bank (unlike when you use credit cards). And the EveryDollar budgeting app makes tracking your transactions (even the cash ones) super easy! 

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EveryDollar gives you a plan for your money—so you can spend with confidence and make progress toward your goals.

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Ramsey Solutions

About the author


Ramsey Solutions has been committed to helping people regain control of their money, build wealth, grow their leadership skills, and enhance their lives through personal development since 1992. Millions of people have used our financial advice through 22 books (including 12 national bestsellers) published by Ramsey Press, as well as two syndicated radio shows and 10 podcasts, which have over 17 million weekly listeners. Learn More.

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