Benefits of shopping with a credit card vs. cash
Quick insights
- Credit cards can offer rewards and protections, but cardmembers may risk overspending or accruing fees.
- Using cash may help you control your spending and avoid additional charges and fees, but it lacks rewards and account protections.
- Your preferred payment method may vary depending on the transaction.
With rewards, protections and other features, credit cards can be an attractive payment method, but cash might be a better option in some cases. Each payment method can have its own advantages and disadvantages, and your preferred option could depend on your financial goals and needs, as well as a vendor’s accepted methods.
To help you make a more informed decision, let’s review some of the pros and cons of using both credit cards and cash, along with a few scenarios where one might be more suitable than the other.
Pros and cons of using credit cards
Below are some potential pros and cons of using a credit card when shopping.
Pros
- A credit card is often required for certain purchases, such as renting a car, because the rental company uses it to hold a deposit for potential damages.
- Rewards credit cards may offer the potential to earn cash back, points and more on qualifying purchases.
- Credit cards may also offer certain protections against unauthorized purchases, including the right to dispute billing errors.
- Credit cards may come with financial and account management tools, including tools to track your spending.
- If the card is lost or stolen, you can request a replacement card, and in many cases, you may not be held liable for unauthorized charges.
- Some credit cards offer additional benefits or perks that may provide protection or coverage for qualifying purchases made with the card.
Cons
- Using a credit card could make you feel disconnected from spending, potentially tempting you to overspend.
- You may incur credit card fees for things like late payments and foreign transactions.
- If you carry a balance month to month, you’ll typically accrue interest.
- Some merchants may charge a fee for using a credit card.
- A credit card is another financial account to manage, which may require extra effort and oversight.
- Some merchants may not accept credit cards or have a minimum purchase amount for using this payment method.
- There’s a risk of accumulating debt and paying off credit card debt can be challenging.
When to use credit cards
There are several purchases where it might be preferable to use a credit card over other payment methods:
- Qualifying purchases for rewards: Credit cards with rewards programs allow cardmembers to earn rewards like points, cash back or miles on eligible purchases.
- Large purchases: You might receive protection benefits like extended warranty protection or return protection on major purchases like a home appliance.
- Travel reservations: You may need a credit card to book a hotel room or pay for incidentals, even if you intend to use another payment method at checkout.
- Recurring purchases: You may be able to use credit cards to set up automatic payments for recurring expenses like monthly bills, which may help you avoid missed payments.
- International purchases: You can generally receive a competitive exchange rate on credit card purchases, potentially limiting the cash you need to convert and carry. While many credit cards charge foreign transaction fees, some travel rewards cards may not.
- Online purchases: You may benefit from security features that help protect against unauthorized purchases when paying online.
- Cashless businesses: Some businesses go cashless for reasons like reducing errors and speeding up transaction times, so you’ll need to choose an alternate payment method (like a credit card) in these cases.
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Pros and cons of using cash instead of credit cards
Here are some potential pros and cons of using cash when shopping:
Pros
- Your spending is limited to the cash in your pocket, so you may find you’re more careful with the purchases you make.
- There are usually no additional charges when you pay with cash whereas credit card transactions may lead to charges and fees.
- Limiting your spending to the cash you have on hand could help you avoid overspending.
- You usually don’t need to worry about minimum purchase requirements.
Cons
- If cash is lost or stolen, it may be difficult to recover.
- Cash can be bulky to carry, and it may be impractical for large purchases.
- Unlike credit cards, you won’t earn rewards on cash purchases.
- Some businesses don’t accept cash, and it can’t be used for online purchases.
- When you’re budgeting and planning, expenses are usually manually tracked.
- If you don’t have a credit card, you’re limited to the cash you have on hand if you encounter unexpected expenses.
- There usually are no additional protections or dispute resolution services with cash transactions.
When to use cash
Making purchases with cash could be an effective strategy for exercising more control over your spending. That’s because you’re limited by the funds you have on hand, and you may feel a greater sense of awareness when you pay in cash compared to electronic payment methods like credit cards that tend to be quicker.
Cash purchases may also be preferred if you’re paying down credit card debt or have exhausted your credit limit. Additionally, you may want to use cash for the following purchases:
- Small purchases: Some merchants have minimum purchase requirements for credit cards or offer a discount on cash purchases, so you may need to pay for small transactions in cash.
- Tips: Tipping with a credit card isn’t always an option, so you may want cash to tip hotel staff, parking valets and other service industry workers.
- Cash-only establishments: Some businesses only use cash—often to avoid fees and simplify their operations.
In summary
Cash and credit cards each have their own potential advantages and disadvantages. Credit cards may come with a variety of rewards, protections and features but may lead to overspending and unwanted fees. Cash, on the other hand, might help you control your spending and typically won’t result in additional fees. However, you won’t receive any rewards or may have limited, if any, protections.
Your preferred payment option may depend on your financial needs associated with that purchase, as well as the vendor’s accepted payment methods.
