The advantages and disadvantages of paying with cash

Disclosure regarding our editorial content standards.

A study conducted by the Federal Reserve Bank of San Francisco found that 19 percent of all payments made for transactions in the United States were cash, marking a 7 percent decrease from 2019. The disadvantages of using cash as compared to other payment methods partly account for the decline. However, there still are advantages to using cash that shouldn’t be overlooked. Weighing the benefits and drawbacks of cash payments can help you make the right decision for your financial needs the next time you’re in the checkout line.

Advantages of cash

Easy to use

Cash transactions are quick and simple. You don’t have to present a card and wait for the clerk to swipe it. You also don’t need to worry about your payment being declined because of an error. While credit card processing systems have become more reliable, outages still occur. When they do, paying with cash lets you buy the things you need.

Has no hidden fees

When you pay with cash, the total amount you spend is what the merchant charges you. With credit and debit cards, things might not be so simple.

Some financial institutions limit the number of debit card transactions you can make and assess fees if you exceed the maximum. In addition, the institutions may allow you to spend more than the available balance in your account and charge you costly overdraft fees.

Credit card transactions mean the potential for interest. If you don’t pay off your balance in full, the credit card company charges you daily interest. This means whatever you bought ends up costing you more in the long run.

Helps reduce/avoid debt and interest

Reducing debt is one of the most powerful ways to improve your credit. Paying with cash means you’re not increasing your outstanding balance faster than you can pay it down. In addition, paying with cash rather than credit can keep your balance further below the credit limit on your card, which helps your credit.

Is accepted most everywhere

Large retailers and restaurant chains generally accept credit cards, but the fees assessed by processors prevent some small businesses from signing up. If you want to hit the farmer’s market or grab a quick bite from a food truck, cash may be your only option.

Reduces impulse purchases

Not carrying cards can force you to think twice about a purchase. If you’re willing to hit the ATM or stop at your bank to withdraw money, you likely need or want the goods or service more. This means less risk of impulse spending and buyer’s remorse.

Makes it easier to budget

Sticking to cash is one way to adhere to your established budget. If you want to limit your spending to a certain amount per day, week or month, you can withdraw that amount and easily track how much you’ve used and how much is left.

Helps teach the value of a dollar

Swiping a credit card equates to the same thing as cash, but many people don’t think of it that way. When your paycheck is directly deposited and you make payments electronically, money may lose its meaning. Conversely, watching the amount of cash in your wallet go down as you buy things can clarify the value of a dollar.

Gives privacy

Data theft is a real threat to consumers. In just the first six months of 2022, more than 53 million Americans were impacted by data breaches, leaks and exposures. Those affected by data compromises can become victims of identity theft.

Credit and debit purchases give merchants your name and account information. In some cases, you may also need to provide your zip code or phone number for payment approval. This information could leave you exposed in the event of cybercrimes.

Eliminates credit balances

When you pay in cash, your transaction is complete. You don’t increase the balance on your credit card and raise your overall debt.

Disadvantages of cash

Gives you no way to build credit

If you ever want to finance a vehicle or buy a home, having strong credit is important. For most people, it takes at least six months of healthy spending and debt management practices to build credit. Using a credit card to purchase only what you can afford to pay off each month is one simple way to demonstrate that you’re capable of responsibly using credit. Conversely, paying only in cash denies you this opportunity.

Is physically inconvenient (and dirty)

For many people, carrying cash isn’t as convenient as carrying a card. Typically, those who pay with cash need a coin purse, money clip or wallet for storage. These accessories can get in the way when you want to travel light.

In addition, cash is made of porous paper that provides a breeding ground for microorganisms. This includes viruses and bacteria that can cause illness.

Makes you pay ATM withdrawal fees or gives you no interest

Accessing cash can mean losing money. If you use an ATM outside of your network, your financial institution and the one that owns the ATM may charge you fees. Going out of your way to visit a branch for a withdrawal wastes gas or can rack up additional fees for public transportation.

People who cash their paychecks and don’t use banks also lose out on interest given on some checking and savings accounts that have debit card privileges. Over time, compounding interest on accounts can help you grow your money.

Gives you no account perks and rewards

Using cash means missing out on perks and rewards provided by some credit cards. In addition, most credit cards provide consumer protection, giving you a way to recoup your money if you buy something defective or pay for a service that doesn’t meet your standards. You won’t get this when you pay with cash.

Doesn’t allow for electronic purchases

Being cash-only means you won’t be able to shop online. It also can limit your ability to buy things over the phone and have them delivered to your home, as few merchants still offer cash on delivery services.

Doesn’t provide automatic record keeping

When you always use credit cards, your statements provide a complete record of the dates and amounts of your purchases. Opt for cash and you’ll need to save receipts to keep track of what you spend and have proof of what you purchased.

Doesn’t always work as a failsafe

Emergencies can strike at any time. If you lose your wallet or have an unexpected expense, not having a credit card to fall back on could leave you stranded or forced to consider costly financing, such as payday loans.

Is easily lost or paints a target for theft

Cash can be easily misplaced or dropped when you’re running errands, and you can’t always count on a Good Samaritan finding and returning it. Carrying large amounts of cash could also make you a target for mugging, especially if others see you paying with it.

Can encourage overspending

Without careful budgeting, having cash on hand can lead you to spend more. Some people get a false sense of security when carrying cash and may be more tempted to buy additional items if they know they have a crisp $100 bill in their wallet.

Should you use cash or not?

The decision to use cash or not is a personal one. Considering your overall financial goals can help you make the right choice.

If you need to build your credit report to obtain car loans or a mortgage in the future, the disadvantages of using cash may outweigh the benefits. On the other hand, if you’re trying to pay down debt or stick to a budget to avoid debt, you may prefer cash payments over cards.

Remember that you always can adopt a mixed payment strategy. Instead of asking yourself which is best for you, try thinking on a transaction-by-transaction basis, choosing cash vs. credit when it makes the most sense for the situation and your financial goals.

And if you are concerned about fixing up your credit to get a loan, our credit advisors at CreditRepair.com could help.

---

Note: The information provided on CreditRepair.com does not, and is not intended to, act as legal, financial or credit advice; instead, it is for general informational purposes only.

Learn how it works