There is no question that for a long time, the world has looked at cash as king, at least until the last 50 years or so. Starting in 1950 with the Diners Club credit card, the days of cash being the best form of payment began to say goodbye slowly. Although cash is still making a strong showing, there is no doubt that credit cards and contactless payments are the future.
Key Points
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The days when cash was the preferred form of payment are long gone.
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Credit cards offer far better protection for consumers, especially against fraudulent transactions.
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While credit cards give you benefits for spending more, cash does no such thing.
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At the very top of the reasons to use credit is the idea of benefits. What cash doesn’t provide you is things like cash-back rewards or even travel points. You spend cash and then you don’t have any more of it. With a credit card, you spend, pay, and get something back from the credit card company.
Why You Should Use Credit Cards
The Benefits
As soon as you see your very first cash-back reward, no matter how big it is, you won’t look at cash the same way again. Let’s say you have a Fidelity credit card, which earns 2% cash back on every purchase. This means that for every $1,000 you spend in a year, you earn $20 in cash back.
For the credit card company, the incentive is to offer you cash back, encouraging you to spend more and earn more interest. The thing is, it doesn’t matter, as both you and the credit card company are winning at the same time.
It’s so hard to ignore the importance of the benefits offered by credit cards. For a travel credit card, you can earn enough points to fly or stay at a hotel for free. You can’t get that, or any similar benefit, with cash, no matter how much you have to spend.
When you also factor in things like extended warranties, auto rental coverage, trip cancellation, and roadside assistance, the list of benefits just goes on and on. Can cash do any of these things?
More Protection
If your wallet gets taken, and your cash is missing, it’s likely gone forever. It’s a sad reality, but it’s one of the main reasons people carry less and less cash these days. On the other hand, if your credit card number or the card itself is stolen and used, the card company will protect you.
Credit card issuers have entire fraud departments dedicated to reviewing these kinds of situations, in the hopes of helping their customers every time. These companies know when fraudulent purchases take place, and they have an incentive to help you.
Without the same level of protection for cash, carrying a credit card can make you feel a lot safer. As people were stuck at home during the pandemic and increased their online shopping, credit card use rose significantly. This means that cash is used only around 20% of the time today, according to the Federal Reserve Bank of Boston.
Contactless Payments
If you have ever been to Publix, Starbucks, Dunkin’ Donuts, or a gas station, you know that contactless payments are incredibly convenient. The days of carrying physical credit cards are almost gone, as you can make all of your payments directly from a phone or smartwatch. You can’t do this with cash, plain and simple. As someone who can’t wait for the day when I only need my smartphone when I leave the house, credit cards are what’s making this possible.
Be Careful Not to Overspend
If there is any area in which cash is better than credit, it’s that you can’t overspend with cash. Once your cash is gone, you have to wait until you can replace it. This isn’t true with credit cards, as you can free up your balance every time you make a payment. This means it can be easy to overspend.
As a credit card payment essentially goes into the cloud, you don’t see it every day as you do with cash. This means that you can easily allow your credit card purchases to spiral out of control. The hard reality is that if you overspend and can’t pay off your balance, you can easily find yourself in situations where your interest payment from the credit card issuer is between 20% and 30%.
This is a big red flag. It could mean that your $100 payment in January will now cost you between $120 and $130 in February. As long as you stick to a budget and pay your credit card off on time, you don’t have to worry about anything.
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