The Advantages of Cash
Credit and debit cards have their place in a frugal consumer’s wallet. But paying with plastic is not always the best way to go — and it’s possible to make expensive mistakes when using credit cards, whether you’re buying groceries or traveling.
Often, the old adage “Cash is king” holds true for many reasons besides avoiding unnecessary interest charges.
The following tips highlight when it is best to keep your credit card in your wallet and instead go with the old-fashioned (but always accepted) green.
Sticking to a Budget
Paying with cash makes your spending tangible. It’s much harder to make impulse purchases and overspend when you are limited to the amount of cash in your pocket. Carrying a set amount of cash can help you stay within your budget.
Small Businesses
With many small businesses looking for ways to save come tax time, their efforts could be to your benefit. Some local businesses offer a discount if you pay with cash. Merchants pay fees in the 3 percent range on credit card purchases, and using cash reduces those fees to zero. Many store owners are willing to share the savings when you use cash instead of credit.
Minimum Purchases
Oftentimes, smaller retailers will insist on a minimum amount, say $10, before they will allow the use of a credit card. This can mean buying unnecessary items just to be able to pay with plastic. Using cash means not being goaded into gratuitous purchases.
Saving Pennies
One of the nice things about using cash is that you regularly get change from your purchases. Put the coins (even the lowly penny) in a special savings jar and you’ll be surprised how quickly they add up. Depending on how long you collect change, you may be able to pay some gym fees, buy a new gadget, or put the savings toward a vacation.
Privacy
When you use a credit card, multiple organizations can gain access to your transaction details, including advertisers, credit bureaus, and governmental agencies. Whatever your motivation for keeping a purchase off the record, consider using cash if you’d prefer to remain anonymous.
Small Purchases
Using a debit card for small purchases may seem the same as using cash, but debit cards (despite having some perks) carry extra risks. If a thief gets hold of your debit card, your checking account can be emptied in a hurry. Avoid the risks associated with carrying a debit card by paying with cash instead.
Travel
Expert travelers have favored cash over traveler’s checks for years now. In general, smaller businesses and restaurants abroad prefer cash. Travel guru Rick Steves suggests converting cash to foreign currency before embarking on a journey. Bring a credit card but use it sparingly. There are drawbacks to carrying cash, such as vulnerability to theft, but if you’re cautious, this shouldn’t be much of an issue.
Medical Care
Many health insurance plans now have deductibles in the thousands of dollars. Consumer advocate Clark Howard advises that patients with high deductibles, who are going to be paying out of pocket anyway, negotiate a cash discount if possible. Many healthcare providers are open to this option because it makes the payment process easier and more certain. Make the deal upfront and shop around (especially for costly treatments) to ensure the lowest price possible.
Tipping
Tipping in cash is considerate (especially when traveling abroad or during the holidays) because it provides immediate payment, whereas the server may not receive a tip left on a credit card right away. Some restaurants also make servers cover the credit card service fee, so a tip in cash is much preferred.
Security Concerns
If you find yourself in a shady diner or gas station (unfortunately these do exist) using cash is the way to go. Even the best merchants may hire questionable employees from time to time, and using a credit card can provide an opportunity for theft.
Returns
If you’re on the fence about a purchase and likely to return it, using cash might be a good way to pay. Although store return policies vary widely, many retailers reimburse customers in the original method of payment. A cash return is immediate, whereas a debit or credit return can take several days to clear.
There are some drawbacks to consider, though. If you lose a receipt, many stores can look up a credit card transaction in order to issue a return — not an option if you paid cash.
Home Buying
Large credit card balances are viewed with suspicion by mortgage lenders. So if you’re in the market for a new home and are applying for a mortgage, it may be smart to pay cash as much as possible beforehand and save credit purchases for after the mortgage has been secured.
Spending Mistakes
It’s always a good idea to use cash if you don’t understand the pitfalls of a credit card. There are still consumers who don’t understand the basic function of a credit card or that they’ll pay interest on the balance if they don’t pay it all at once — a confusion that benefits card issuers.
“I get questions from people all the time who kind of think of it as a debit card or gift card, where there’s magically money on it and you just get to spend it,” says Brooklyn Lowery, editor at the credit card comparison and analysis site CardRatings.com.
Saving Money
If you decide to pay with a credit card instead of cash, you may end up paying a lot more than you expect. “You can’t just take your balance and multiply it by 14.99 percent and get your extra payment for the month,” Lowery says.
Annual percentage rates are for the year and not a monthly fee, and sites such as CardRatings still have to provide rate calculators to show cardholders how much interest they’ll pay each month.
When Negotiating
Whether it’s negotiating a lower price at a garage sale or for a used car, it’s common knowledge that showing a hesitant seller the money will often tilt the negotiations your way. There’s something about actually seeing the money that can increase a seller’s willingness to deal.
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This article was originally published on Cheapism
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