“What’s better, cash or card?”
When it comes to different forms of payment, everyone has a preference. But is there one method that is truly better than the others? Each option has its costs and benefits, making this a difficult question to answer.
We are going to break down the arguments for and against these different payment options, so you can make an informed decision the next time you find yourself at this fork in the road.
Purchases with Cash
Although it’s uncommon to carry large amounts of cash on hand nowadays, there are plenty of benefits to making purchases with paper vs. plastic. With the threats of credit card databases getting hacked and other cybersecurity concerns, you do not have to worry about stolen identity.
Additionally, you can save money in a couple different ways. First, it’s harder for people to part ways with physical money, so they’re more thoughtful about purchases and less likely to shop on impulse. From a psychological standpoint, there’s something about physically handing money over to another that lessens one’s excitement in making a purchase (especially an unnecessary one). You can read more about this phenomenon in this article from Psychology Today.
Second, cash has the delightful quality of not accruing interest charges. Compounding interest in credit cards can quickly get out of hand for people, even if they are making regular payments on a bill. A cash transaction begins and ends at the register.
And finally, many people are willing to take a discount if you pay in cash. For example, certain gas stations charge five or ten cents per gallon less if you pay in cash. Since retailers don’t have to pay credit card processing fees in a cash transaction, some are more than willing to pass those savings off to their customers.
Purchases with Cards
While the idea of a credit card makes some people nervous (especially when thinking about interest rates and debt), cards be advantageous in certain situations. One of the limitations of cash is that you can only carry a finite amount of cash with you.
Today it is rare to find someone carrying cash on hand, perhaps a few dollars here or there. When it comes to carrying cash, one of the unfortunate components is that there’s only a finite amount you can carry with you (i.e. you do not have access to all of your funds). With a card, you have access to all of your funds, minus the bulk.
Another benefit of a credit card is that they are easily replaceable. Most companies have policies in place that since cash that is lost/stolen is not as traceable/replaceable as a card. Cash that is lost is usually lost for good.
If you’re trying to stay on a budget, making cash-only purchases means you’ll have to keep track of spending manually, which could make it cumbersome and potentially nonexistent depending on how much time you have to dedicate to manual tracking.
We can also argue that some options aren’t open to you unless you have or are actively building credit. If you want to build up credit, that’s impossible with cash-only transactions. Certain purchases (think online shopping) and rentals (hotels, cars, etc) require at the very least a debit card. And, you won’t receive any rewards for making cash only purchases- and credit card rewards and points can often be what attracts people to using cards in the first place.
So, which should you use?
It depends on the situation. Unfortunately, there’s no ultimate right or wrong answer, and most people use a combination of the two. If you are disciplined with your budget, you could enjoy the benefits of a credit card without having to worry about the pitfalls that many others fall into.
If you have to make a purchase that goes beyond your current means, create a payment plan to avoid accruing large amounts of interest. If you aren’t confident in your discipline with spending, it might be best to stick with cash or debit/ATM cards so you don’t have to worry about overspending.
No matter what you decide to use for your purchases, have a plan in place and stick to your budget!