Credit cards can offer a number of benefits, like the ability to earn points or miles on qualifying purchases, but sometimes it makes more sense to use cash. Let’s look at the pros and cons of each and when you might choose cash over credit.
Pros and cons of paying with a credit card
Like any payment method, using credit cards has both 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. Some card issuers, like Citi, also offer $0 liability on unauthorized charges.
Rewards credit cards: Your credit card may offer the ability to earn points, miles or cash back on qualifying purchases.
Can be helpful for sudden expenses: Credit cards can help when you’re short on funds and facing an unexpected expense.
Make travel easier: Hotels typically require that you keep a credit card on file for booking and incidental charges, even if you intend to pay for the stay in cash at checkout. Also, using a credit card abroad can mean not having to convert or carry as much cash, and a card with no foreign transaction fees can save you from added costs.
Convenience: Using a credit card can mean not having to carry as much cash. Plus, many credit cards allow for contactless payment, which can be efficient.
Build creditworthiness: Using your credit card responsibly and making on-time payments can help you build credit.
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 fees and interest charges.
Potential to accrue debt: Making purchases you can’t repay could lead to more debt.
Annual fees: Some cards carry an annual fee that may be worth it depending on your spending habits and the benefits.
When to consider using a credit card
You're shopping online: Cards are often the only way you can pay for online purchases. Plus, credit cards have protections, like 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 something.
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. The same is not true for cash.
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 your credit card for purchases.
When credit cards may not be the best choice
There's a surcharge for using your card: Some merchants charge a fee for credit card transactions that can outweigh the benefits.
You're trying to pay of debt: If you’re focused on paying down debt, using credit cards might not align with your financial goals.
You're approaching your credit limit: Maxing out your credit card could negatively impact your creditworthiness and affect future borrowing opportunities.
Pros and cons of paying with cash
There are many reasons to keep cash handy, and there are some situations where using a card might make more sense.
Pros of using cash instead of a credit card
More aware of your spending: Using a credit card instead of cash doesn’t necessarily mean you’ll rack up debt. But excessive credit card use could result in owing more than you can easily pay back. Having to hand over cash for each transaction can help you be more aware of your spending habits.
When businesses only accepts cash: Some businesses may even offer a small discount for paying with cash instead of a credit card.
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 issuer, and you’re typically not responsible for unauthorized transactions. When cash is lost or stolen, this isn’t usually the case.
Lack of convenience for large purchases: It's impractical to pay for certain purchases, such as a car, with cash.
Can't earn points, miles or cash back: Rewards credit cards can offer perks that cash doesn’t.
When to consider using cash
The business is cash only: Some businesses don’t accept credit or debit cards.
A cash discount is available or the merchant adds a surcharge for using a credit card: In these cases, it can make sense to pay with cash.
When cash may not be the best choice
You need to pay over time: Credit cards offer more flexibility by allowing you to make monthly payments rather than pay for something all at once, but keep in mind you could incur interest.
Large purchases: Cash isn’t always the most convenient option for large purchases.
You want to build your credit: Cash payments aren’t reported to credit agencies and won’t improve your creditworthiness.
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.
