4 reasons it can pay to use cash

Marcos Brindicci | Reuters

Most Americans are still using cash to pay for purchases under $10, even though technology has made it easier than ever to use credit, according to a 2019 online poll of about 2,500 adults from CreditCards.com and YouGov, a public opinion and data company.

And that may be wise. Many consumers carry a balance on their credit cards: U.S. households owe $1.07 trillion in credit card debt, according to June data from the Federal Reserve. Unless you can pay your credit card in full each month, it's best to do most of your spending using cash or debit, says Joe Resendiz, a research analyst at ValuePenguin: "If you're paying interest on your credit card purchases, that offsets any rewards you're earning."

Credit cards can offer many advantages, like cash back, other rewards, or travel discounts. But those perks aren't always worth the drawbacks, says Resendiz.

Here are four reasons why he and other experts say it can pay to use cash.

1. The 'pain of paying' can help you spend wisely

Paying with cash can mean you're more likely to feel "the pain of paying" — which sounds bad but can actually be helpful. By making spending less automatic and more "painful," you may find that you make smarter choices: sticking to planned purchases, for example, and avoiding impulse buys.

Resendiz points to an M.I.T. study that found some shoppers are willing to pay 83% more when paying with a credit card than when paying with cash.

To counter that impulse, Resendiz says, be disciplined. While paying with a credit card records all of your purchases automatically, with a bit of extra effort you can also record purchases you make with cash. To stay on top of spending, Resendiz suggests using an app to take pictures of your receipts so you don't have to carry scraps of paper around.

How the pain of paying can affect your spending

2. It can be easier to socialize without overspending

Cash is also useful socially, says Linda Sherry, director of national priorities for Consumer Action. If you're out drinking or in a situation where it's easy to overspend, consider withdrawing a set amount of cash and sticking to that limit.

Servers largely prefer getting their tips in cash, she adds.

Generally, says Sherry, it can be hard to stay disciplined and stick to a budget when paying with credit. In some scenarios, paying in cash can help hold you accountable. That was 23-year-old Kristy Epperson's experience: She tells Grow that focusing on cash helped her pay off $20,000 in debt in one year.

If you're paying interest on your credit card purchases, that offsets any rewards you're earning.
Joe Resendiz
ValuePenguin research analyst

3. You'll avoid certain fees

It makes sense to use cash at businesses that tack on a fee if you use credit and spend under a minimum purchase limit, usually $5 or $10. Gas stations and small mom-and-pop shops may charge more for paying with plastic.

Though it's convenient to use credit for certain online purchases, buying movie tickets in advance, for example, may require paying processing fees. Though small, those can add up fast.

4. Cash is king in an emergency

Cash is often your best bet to help you cope with a crisis. Yet almost 40% of American adults don't have $400 to cover an emergency, according to the Federal Reserve.

Experts suggest keeping an emergency fund in an online high-yield saving account, or another accessible account. Start by saving $500, suggests Americasaves.org, and aim to be able to handle at least three to six months worth of living expenses.

That way, if your refrigerator breaks, for example, you could have the cash to cover the cost of a new one. You wouldn't have to slowly pay off the purchase the way you might have to if you used a credit card, which can make that fridge cost even more due to interest, says Sherry.

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