Benefits to Using Cash over Credit

Many people rarely carry cash; instead, they use their credit cards for all of their daily transactions.  There are plenty of good reasons to use credit—it is easily accessible, you can track your expenses every month through your credit statement, you don’t have to worry about running out of money, and you can accrue cash back or other rewards with your credit card.

However, a side effect of using credit frequently can be debt, sometimes a lot of debt.  Because credit is easy to use and accessible, many people spend more than they should and are unable to pay off the balance.  According to Capstone Credit Group, the “average American household with at least one credit card has nearly $10,700 in credit card debt.”

While proponents argue that it is possible to use credit responsibly and “game” the system by getting nice rewards for credit usage, for many people, there are several advantages to going back to a cash only system.

You can’t spend more than you earn.  Many Americans no longer spend less than they earn, thanks in part to credit cards.  If you switch to a cash-based lifestyle, you will have no choice but to spend within your means.  When the cash is gone, it is gone.  If you are short on cash, you must either forego spending or find a way to make more cash.  This is simply the best way to stay out of debt.

You will avoid interest charges and late fees.  If you run a balance on your credit card, chances are you are paying 10 to 20% in annual interest.  If you pay late, you will not only incur a fee, but your annual interest rate could jump to as high as 29.99%!  Pay with cash and you save yourself quite a bit of money in annual interest fees and potential late fees.

You may get a discount when using cash.  Every time you make a purchase with your credit card, no matter how small or how large, the retailer is charged a 2 to 3% fee by the credit card company.  Several companies try to limit these fees by offering their customers discounts for using cash.  A local gas station in my neighborhood offers consumers .10 off per gallon when they pay for gas with cash.  Other retailers, such as Costco, won’t accept Visa or Mastercard.  Still other retailers impose a fee on their customers if they use cash.  I recently booked a hotel that charged a 5% surcharge to every customer who paid with credit card; as we were staying at the hotel for four nights, that 5% fee would add $27.50 to our bill.  We paid with cash.

Reduce your chance of identity theft.  Identity theft can occur through a variety of means, but by not using a credit card, you reduce your chances of being an identity theft victim.  You will still need to safeguard your personal information in other circumstances, but you remove one way thieves can steal your information.

While many Americans use credit cards for most of their purchases, there are important advantages to using cash.  If you revert back to a cash-based lifestyle, you may at first have a hard time remembering to bring enough cash with you, but eventually you will get used to it.  My husband and I have been using cash only for the last five months, and we haven’t found it to be any more difficult than using credit cards.  Best of all, we are easily able to stay within our budget.

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