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Cash vs. Credit Card: Which Should I Use?

Swipe. 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 exact change.

What you may not realize, though, is just how quickly those $5 swipes add up—and how much using a credit card over cash is actually costing you.

Cash vs. Credit Card: What Are the Benefits of Using Cash?

If the cash vs. credit card debate was a boxing match, cash would definitely come out on top. Keep reading to see all the reasons why paying with cash is better than swiping your plastic.

You can only spend what you have.

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 later.

On the other hand, paying with cash keeps you from spending money you don’t have. That means if you blow your grocery budget at the beginning of the month, you’re going to feel it at the end of the month.

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And when you realize that you don’t have an endless supply of money at your fingertips, you’re more likely to change your money habits. Trust us, seven days of tuna fish sandwiches may be the best overdraft protection there is.

You spend less when you use cash.                               

A study from the Journal of Experimental Psychology: Applied found that it’s psychologically less painful when you use a credit card over cash because it feels like you’re spending “future” money, rather than present money.1

There’s something about physically handing over your hard-earned cash that makes you think twice before you spend it. You’re more likely to stick to your budget and find ways to stretch your dollar—like shopping around and looking for sales.

You can get a good deal when you use cash.

There’s no better bargaining chip than a pocket full of cash. Salesmen go wild when they get a whiff of those Benjamins. If you’re shopping for a big-ticket item, like a car, offer to pay in cash. It gives you great walk-away power—which will leave the salesman saying, “Wait, please come back!”

Paying with cash reduces your chance of having your identity stolen.

According to the 2021 Identity Fraud Study released by Javelin Strategy & Research, criminals made off with $13 billion in 2020 by stealing people’s personal financial information.2

Each time you swipe your 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? So, use cash to keep your personal information to yourself.

Cash doesn’t come with fees.

Think of the 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 more packets of gum and end up spending more than you planned.

Or picture this: You spot the perfect tomato at your local farmers’ market. But Farmer Joe only takes cash. You might be able to find an ATM nearby, but that’s probably going to run you a couple bucks in service fees. And even if Farmer Joe did have a credit card machine, a lot of small business owners get charged for each swipe—which means you’ll probably get stuck paying the convenience fee (which isn’t very convenient for you, is it?). Either way, you’re paying extra to use a credit card. (Don’t even get us started on credit card annual fees.)

Paying with cash means you own, not owe.

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.

And one study found that those who pay with cash actually have a more positive relationship with the items they purchase.3 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.

Cash vs. Credit Card: Common Reasons People Use Credit Cards

Now that we’ve covered the benefits of using cash, let’s look at the most common reasons people use credit cards—and why cash is still the way to go.  

Reason 1: I’ll blow through all my money because I lack self-control.

Truth: Undisciplined spending is often a symptom of a larger problem. And credit cards only make this problem worse—after all, they’re designed to keep you spending more, owing more and paying more in interest. But everyone needs a plan for their money, no matter their preferred payment method. Controlling your spending is less about cash vs. credit card and more about changing your behavior and getting on a budget.

Reason 2: I can’t use cash to buy things online.

Truth: Two words: debit card. We get it—the world has changed and many of us do most of our shopping online now. That’s where a debit card comes in super handy. It’s the only same-as-cash payment we approve of, and it’s just as secure as using a credit card. The only difference? A debit card won’t put you in debt!

And don’t be fooled by those buy-now, pay-later scams when you’re scrolling through online stores. Installment payments are another easy way to get trapped in debt.

Reason 3: Booking travel is easier with a credit card.

Truth: Travel is one of the biggest excuses in the cash vs. credit card discussion. But you can still rent a car, book a flight, or reserve a hotel room with a debit card.

Some places may put a temporary hold on your card (in case of damages). But 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.

Reason 4: It takes too long to get my cash out at the store.

Truth: We’re not saying you should be “that guy” who pays for all his groceries in pennies. We’re just saying it’s okay to give yourself a moment to count correct change. Patience is a virtue, so there’s no harm in helping the three nice folks in line behind you practice it. And if you’ve got a good way to organize your cash (like the envelope system), you’ll save yourself some time digging through your wallet.

Reason 5: I get cash back with my credit card.

Truth: Here’s the deal—“cash back” isn’t really cash back in your pocket. You usually have to spend thousands on a credit card to get back $100. And that amount goes straight to your credit card account. You don’t actually get to put a fresh bill in your wallet.

Despite the promise of fancy rewards, credit cards often end up costing you more in the long run. Between late payment fees and interest, it’s easier than you think to get caught up in a cycle of credit card debt. The idea of cash back may sound great, but it’s just a tricky way of getting you to spend more than you would have otherwise.

You can live a life without credit.

We know you can’t pay for everything with cash. But using it when you can makes all the difference in helping you spend less 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.

Yep, we're talking about budgeting. Having a monthly budget is the best way to know exactly where your money is going in real time and make sure you're not breaking the bank (unlike when you use credit). And with the EveryDollar budgeting app, tracking your transactions (even the cash ones) is super easy! 

Ready to have more control over your money? Go ahead and start budgeting for free with EveryDollar today.

Ramsey Solutions

About the author

Ramsey Solutions

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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