Should You Pay in Cash?

Whether it’s groceries, a car, or a new wardrobe for work, you might wonder if it’s better to pay by cash or put the purchase on a credit card.

Here are some tips via Wisebread.com to help you decide what is best for you when you’re about to make a purchase or thinking of making one, big or small.

Put it on Plastic

With so many credit card options available to consumers it’s no wonder many opt for the plastic instead of cash.

Many folks think plastic is simply more exciting than plain old cash these days. In fact, a number of banking institutions even allow you to customize the graphics that appear on the credit card/debit card itself.

There is also the security of a debit and/or credit cards: Debit cards are protected by your personal identification number also known as a PIN and credit cards by your signature. Cash, unfortunately, is only as safe as carrying it in your purse or wallet.

Additionally, cards are widely accepted as cash – with the exception of small mom and pop shops. And yet, from a personal finance view, cash is almost always the better choice for making a purchase, Wisebread.com says.

Here’s why:

1.Overpaying

One of the drawbacks of credit and debit cards is that they encourage you to spend more than you intend by giving you easy access to more capital. With cash, spending more than you intended requires going to a bank or ATM to get more and then going back to the store to complete the purchase. Keep this in mind: While some businesses have in-store ATMs, all charge fees, in addition to whatever fees your bank charges. For most people, these factors will cause them to reconsider whether their budgets can handle any extra strain.

In most cases, only carrying the cash you are prepared to pay for a given product will prevent you from buying the items and/or paying for other things you don’t need. This works for small-scale purchases, but buying a computer, or a car can involve large amounts of cash that probably shouldn’t be carried around, Wisebread.com says. If a check can’t be used, a debit card is better than a credit because you are spending money you have rather than money you don’t.

2.Over-Shopping

Using a credit card also lets you purchase way more than you intended. Ever hear of impulsive buying, stores share have.

According to the article “Cards Encourage You to Overspend” on Soundmoneytips.com, people will spend more with a credit card compared to cash. In fact, a Dunn & Bradstreet study found that people spend 12% to 18% more when using credit cards than when using cash. And McDonald’s found that the average transaction rose from $4.50 to $7 when customers used plastic instead of cash, Wisebread.com says.

Can you get around this? Only carrying enough cash to buy the things on your list can limit the damage. This is the best way to shop and stay within your budget, too. If you are motivated, you will find discounts or cheaper alternatives to your regular brands to make that cash go further and maybe earn yourself a pricier item, Wisebread.com adds.

3.Cash vs. Credit Cards

Cash, for the most part is limited to money you have already earned and is waiting to be spent. Using your American Express card to take a cash advance and then carrying the cash with you will not solve the basic problem of using high-interest debt to cover your expenses.

Cash has one major advantage over using a credit card: If you buy something on your credit card and end up carrying a balance, or only make the minimum payment each month, you will incur interest as set by the card, Wisebread.com says. Bottom line: Before signing up for a credit card, make sure you know what you’re getting into first.

4.Cash vs. Debit Cards

Many people are shocked when the monthly statement on their credit card arrives and there is a charge for this, that, and a lot of other hidden fees including ATM fees. On the flipside, with cash, you can see the damage as it is done and easily halt your spending before it gets out of hand.

In the End

Using a credit or debit card offers much more security than cash in most cases. For large purchases, carrying cash is often not an option and writing a check, or getting a bank draft may be more trouble than it is worth for some. Also, if a debit card is used responsibly, it is an ideal replacement for cash. A credit card can also be a convenient tool, but it’s only a fair substitute for cash when the balance is paid in full at the end of each month. Otherwise, your ultimate reward for paying with your credit card will be paying off an even bigger debt.

If you are on over-spender when shopping, using cash is one way to stay within your budget and limit impulse buying. The choice is ultimately yours as to what works better cash or plastic!