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Cash or Credit: Which One to Choose?

Here’s the scenario: You enter a store to make a small purchase and have the cash and your credit card with you. The item is less than $200. When you reach the checkout counter, how do you decide your payment method? How do you determine if to pay with cash or credit? And is there even a difference?

Cash or Credit: Pros and Cons

To help you decide, let’s look at the pros and cons of using cash as opposed to using your credit card. The first thing you have to do is to determine which will be more beneficial to you. If you don’t use the cash and use your credit card instead, think about the cost.

Here’s a simple and effective guide:

When purchasing, if you are not able to pay the card off before interest occurs, then use cash.

Just think about it, if you use the credit card and don’t pay it off before you are charged interest, then you will be losing money that you could otherwise save. Interest is, simply, additional money needed to repay the initial amount of money borrowed.

For example, if you used credit to purchase something for $100, and there is a 22% interest rate on your card, your monthly payment would be around $15 per month. On average, it will take about 8 months to pay off $100 and you will pay an extra $8 in interest. If you decided to pay cash, you get to keep your $8 that would have been lost to interest.

You may be asking, what is $8 and how can that help me? But if you saved that $8 over a period of 8 months you will have saved $64. It adds up. Instead of paying the credit card company $108, you can pay yourself $64. Which is better?

Further, it is always good to have cash on hand because you never know when payment systems will be temporarily down and your credit card is totally useless.

This happened to a client of mine, who went to make a purchase at the grocery store. His items were scanned and he was ready to make payment with his card, only to be told, the system was down. He recalls how disappointed he felt to have to put all the items back and leave without his groceries. The irony of it all is that he had the money in cash at home.

To add insult to injury, he had to make his purchase at another grocery store, but ended up paying more for those items. This grocer’s prices was more expensive for most of the items he purchased. If he had cash, this could not have happened.

When to use credit

You should view credit as a tool. In a previous blog, we discussed the importance of credit. You can read it here for quick insights on the topic.

Credit is just the way you conduct your financial life to get items you need.  Some of these items are cars, homes, technology, furniture and appliances.

Remember, credit is a catalyst for the economy. Many small businesses rely on loans for their start-up costs. By employing workers, these businesses boost income for families as well as the community. These families, then, use their income to purchase goods and services from other businesses, thereby helping them to grow financially.

Credit cards are good to have when you use discipline with them. Just as there are different types of credit cards, there are also different types of credit. You can learn about the three different types of credit in our blog on the topic. It’s a short read that can help you understand the topic better.

Credit Cards can boost your credit score considerably when used properly. If your goal is to build your credit, be cautious of the cost.

I always say, there are two sides to a credit card: the beauty side and the beastly side.

The Beauty Side of Credit Cards

To help you decide, let’s look at the beauty side of credit cards.

• Convenience – For the most part, it is easier to have a credit card and, of course, it can be safer than carrying cash. It is also more convenient to use a credit card for travel expenses as well as making purchases on the Internet.

• Protection – When you make a purchase with a credit card, it becomes much easier to obtain a refund if any problems or issues develop. Credit card companies, by law, must offer credit protection, and this is a type of insurance that will help you if you purchase something and it is damaged when you receive it. Protection against fraud is also a great benefit of credit.

• Emergencies – A credit card will allow you to be ready to handle emergencies if cash is not readily available. If used wisely, they can be helpful in these circumstances. In cases of emergencies, it’s always good to have some cash on hand, though, just in case.

• Opportunities – Credit cards allow you the opportunity to build your credit portfolio, when used properly. Building good credit is an excellent way to strengthen your credit score and gain credit worthiness.

Never get more credit than you actually need.

• Rewards – Most credit cards provide rewards, cash back or points, or even flier miles for purchases. These rewards are often given monthly and can help offset other costs, based on the benefits they provide.

The Beastly Side of Credit Cards

Now that we know of their beauty, let’s see the other side of credit cards.

• Interest – As stated earlier, there is always a cost to credit cards and that cost comes in the form of interest. The interest always make the purchases more expensive. Even a low-interest card, is still interest. From the moment you swipe your card, the interest automatically makes the purchase more costly than if you had paid cash.

Credit cards with zero interest for a year can be a good thing, but most cards will charge you interest. If you have a balance at the end of that year, the interest will be added on and it can be very costly. So if you are not able to pay off the card before the year is up, don’t accept it.

• Fees – Fees go hand in hand with interest. When you don’t make timely payments, you can be certain to incur fees. Even more, when fees are added to your balance for late payments, interest is charged on these fees as well. Ouch!!

You always have to count the cost of credit.

• Fraud – Due to identity theft and other cyber crimes, credit cards are susceptible to fraud. International cybersecurity company, Kaspersky, provides simple tips on how-to protect yourself against cybercrime. Being a victim of credit card fraud can be devastating to life. It can be even more hurtful to know that you’ve become a victim because of a breach at a credit card company, and not due to any fault of your own.

A recent study found that, “there were 650,572 cases of identity theft in 2019. Of those, 41 percent, or just over 270,000, were credit card fraud.” You can see a more detailed breakdown of those credit card fraud statistics here.

• Debt – It’s important to recognize that using credit is a form of debt. You were given an advance or a loan, based on the financial strength of a lender or financial institution.  Each time you use your credit card, you are incurring debt. Of course, when you pay off your balances (on time) then you reduce that debt. But even if your practice is to consistently make the minimum payments, if you make additional purchases, your debt will grow. And it can grow rather quickly.


Is cash, indeed, king?

We’ve explored the pros and cons of credit, so let’s point out some of the benefits of paying with cash.

• Cash is Convenient – The reality is, in many instances, paying with cash can be more convenient and quicker than paying with credit.

Also, many smaller business, or independent vendors/entrepreneurs may not have access to a linked payment system that goes directly to an account. Think of if you’re making purchases of art & crafts or other personalized goods made by independent suppliers. For them, it would be much more convenient to receive payments in cash.

• Cash does not give access to your personal information – There is an additional barrier of privacy provided by cash purchases. None of your personal information can ever be linked to a cash purchase.

Unlike credit cards, when you pay with cash, your personal data can never be compromised or accessed. Each year, billions of dollars are stolen from Americans as a result of identity theft and fraud. Using cash decreases your chances of this happening.

• Cash enables better deals – Whether for a purchase of a car, or some other big-ticket item, when you have cash you have an opportunity to leverage a better deal. Cash is the ultimate bargaining tool for securing a reduced price.

There is no set percentage or amount that having cash will specifically save you. It will differ from situation to situation. But the moment you have the cash to cover a large (or even small) purchase, you have an opportunity to secure a lower price because of it. And who doesn’t want to pay less for something purchased?

• Cash helps you spend less – There’s nothing like being physically reminded of your budget limits by knowing the exact amount of cash sitting in your wallet or handbag. For some people, credit cards can give a false sense of one’s financial limits. Not with cash!

With cash in hand, you know exactly what your limits are and there is no temptation to go beyond these limits.

When you have cash, you tend to think differently about your spend. In fact, it may even make you more frugal because you will shop around for better deals. So, having cash in hand will help you to spend less.

• Cash teaches you – When you have access to paying with cash, it teaches you to spend what you have. Cash payments keeps your spending habits within reach and helps to keep you within a budget.

Having cash is like having a personal financial coach saying, “Nope, you can’t get that” or, “Sure, you can afford to make that purchase.” How cool is that?


Decisions. Decisions.

The next time you’re preparing to make a purchase, no matter the size, think about if you should use cash or credit. We have learned that there are advantages to both, but the advantages will vary in each situation. And we have learned that, indeed, there is a difference between the two.

At the end of the day, it’s always best to make your decision in the interest of leveraging your financial strength. If you consider these points, you should be able to make better financial choices that can serve to help you over time.

Whether you use cash or credit, these points can help you make a more informed choice. It’s about spending wisely, and growing financially in the process. The choice is always yours.

We would love to hear how this information inspired you. For more insights on all the financial possibilities available to you, feel free to contact us or reach out to Empowering the Possibilities on Facebook and, of course, don’t forget to share this information with others.

This Post Has 2 Comments

  1. Denise Johnson

    OMG! Thank you for this information. I struggle with cash or credit all the time.

    1. Lillie Graham

      Thank you so much for your comment

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