Choosing Between Cash and Card: Insights from Financial Experts
Our spending habits are significantly influenced by how we choose to make purchases. Whether we opt to pay with cash or a credit card can reflect our broader financial tendencies.
According to Forbes, about 70% of people prefer using a card over cash, while 22% mostly use cash. Fourteen percent prefer cash because it helps them control their spending better.
Understanding the pros and cons of paying with cash or a card can help you save money and develop smarter spending habits.
**Benefits of Paying With Cash**
While using a card or digital payment method might be faster, there are several advantages to paying with cash.
**Less Risk Than a Credit Card**
Paying with cash eliminates the worry of debt that comes with credit cards. Bob Chitrathorn, CFO and vice president of wealth planning at Simplified Wealth Management, notes that using credit cards can be risky if you’re not disciplined enough to treat it like cash and pay it off regularly. Weekly payments are better to avoid accumulating a large balance by the end of the month.
**Paying With Cash Can Save You Money**
When you pay with cash, you can physically see your money decreasing, which can deter unnecessary purchases. Studies show that people spend up to 15% to 20% more when using credit compared to cash, according to Kyle Enright, president of Achieve Lending. Erika Kullberg, founder of Erika.com, adds that handing over cash and seeing your money dwindle has a significant psychological impact, making you more aware of your spending compared to the ease of swiping a card.
**Immediate Refunds**
Another benefit of paying with cash is the possibility of immediate refunds. If you need a refund for a purchase made with a credit card, it might take a few days for the transaction to process.
**Benefits of Paying With a Credit Card**
Just like cash, using a credit card has its perks.
**It’s Better To Lose Your Card Than Lose Your Cash**
If you lose cash, it’s gone forever. However, if you lose a credit card, you can stop payments and block the card. Bob Chitrathorn points out that you can even get reimbursed for unauthorized charges.
**Improves Your Credit Score**
Regularly using and paying off your credit card can improve your credit score, which is crucial for larger purchases like renting an apartment or applying for an auto loan. A good credit score can also affect your auto insurance rates and job prospects. Kyle Enright advises being careful to charge only what you can pay back in full each month to build a good credit profile and avoid debt.
**Consumer Protection and Insurance**
Credit cards offer consumer protections such as rental car insurance and product warranties, providing an added layer of security for your purchases.