Credit Card vs. Cash: Which to Use

When you reach into your wallet to make a purchase, you may find yourself wondering whether to use cash or credit. Credit cards can offer several benefits, such as the ability to earn points or miles on qualifying purchases, but sometimes it may make more sense to simply use cash. Let’s look at the pros and cons of each and when you might choose cash over credit.

How do I know when to pay with a credit card?

Like any payment method, using a credit card has its benefits and drawbacks.

Pros of using a credit card instead of cash

Peace of mind: The Fair Credit Billing Act (FCBA) protects consumers’ right to dispute credit card billing errors — such as being charged twice for a single purchase by mistake. You’re also only responsible for up to $50 in unauthorized charges if you report the charges within 60 days of your billing statement. Citi card members are responsible for $0 on unauthorized charges.

Rewards: Your credit card may offer the ability to earn points, miles or cash back on qualifying purchases.

Ease of travel: Using a credit card while traveling means you don’t have to exchange money or carry as much cash. Some cards may even offer no foreign transaction fees.

Building creditworthiness: Using your credit card responsibly and making on-time payments can help you build credit, which may help when applying for a loan or a higher credit limit.

Covering sudden expenses: If an emergency or unforeseen expense pops up, paying with a credit card may give you some breathing room while you get your finances in order.

Cons of using a credit card instead of cash

Interest and fees: If you don’t pay your full statement balance each month, you could accrue interest. Some actions, like missing your payment due date, can result in extra fees and higher interest charges.

Card surcharges: Some merchants charge a fee for credit card transactions.

Spending beyond your means: It’s important to use a credit card responsibly so you don’t make purchases you can’t repay, leading to taking on unnecessary debt.

Annual fees: Some cards carry an annual fee to pay for travel credits, complimentary memberships and other perks that come along with the card.

When to consider using a credit card

You’re shopping online: Cards are often the only way to pay for online purchases.

You’re worried about cash getting lost or stolen: If your credit card is lost or stolen, you’re usually not responsible for unauthorized transactions. If you lose your cash, it’s gone for good.

You’re worried about a purchase’s quality: Credit cards offer protections, such as the ability to initiate a chargeback in certain circumstances — for example, if you’re unsatisfied with an item or if the seller refuses to issue a refund after you’ve returned it.

You want to use your card’s benefits: If you have a rewards credit card that lets you earn points, miles or cash back on qualifying purchases, it can make sense to use that specific credit card when checking out.

How do I know when to pay with cash?

While credit cards may seem like the only payment method you need, there are still many reasons to keep cash handy.

Pros of using cash instead of a credit card

Businesses may only accept cash: Stores may not offer the option to pay with a credit card. Other businesses may offer a small discount for paying with cash.

Stay aware of your spending: If you’re worried about spending outside your means, handing over cash for each transaction may help you be more aware of your spending habits.

Simplified spending: Once you pay for something with cash, you’re done. There are no monthly payments to remember.

Cons of using cash instead of a credit card

No protection from loss: You can replace a credit card easily by contacting the card provider, and you’re typically not responsible for unauthorized transactions. When cash is lost or stolen, it may be gone for good.

Inconvenient for large purchases: It’s impractical to pay for certain purchases, such as hotels or flights, with cash.

Can’t earn points, miles or cash back: Rewards credit cards can offer perks for your everyday purchases that don’t accrue when you pay with cash.

One-time payment: Unlike credit cards, where large payments can be split up over time, you’ll need the entire cost of an item or service in cash when you buy.

When to consider using cash

The business is cash only: Some businesses don’t accept credit or debit cards

There’s a card surcharge: You may be able to save a little money if the business offers a discount for using cash

In an emergency: Having cash on hand can help if there’s an issue with your card or the business loses the connection to their payment processor, especially if you’re abroad

Is it better to use credit cards or cash?

There’s no one-size-fits-all answer to whether you should pay with cash or a credit card. It may be more convenient to use your card, but having cash on hand is generally a good idea in case your card doesn’t work. Staying flexible and understanding your habits can help you find a healthy balance.

Disclosure: This article is for educational purposes. It is not intended to provide legal, investment, or financial advice and is not a substitute for professional advice. It does not indicate the availability of any Citi product or service. For advice about your specific circumstances, you should consult a qualified professional.