There are different theories on whether it is advantageous or not to pay in cash for all your expenses. One one side, people prefer the method since they want to address the problem of falling into unmanageable debt. On the contrary, most consumers choose to pay with credit or loans since it helps them with their credit standing.
If you are trying to decide which one is better, here is a quick breakdown of some of the pros and cons of exclusively using cash for all payment needs.
Advantages when you pay in cash
There are a number of advantages when you begin paying for your purchases in cash. This is the reason why a lot of people prefer it over credit cards. Here are some of the more popular reasons why this is so.
You avoid debt
The most obvious is that you get to avoid taking out a loan from lenders and creditors. Remember that credit card purchases are essentially short term loans from your creditors. You charge a specific amount and your creditor pays for it in advance. In turn, you promise to pay them back within a specific period of time.
When you pay for your purchases in cash, you do not have to think about getting in debt. Your statement is pristine and is not riddled with charges. When a sudden financial need arises, you are not that much worried because you know that your income is still intact. You do not have that many payments you need to make every month because you pay for purchases in cash.
Card penalties and interest do not bother you
One of the downsides, when you choose not to pay in cash, is dealing with interest payments. This is because when you use your card, your lender normally adds interest to your payments to help them cover for the risk they are taking. The interest rate normally depends on your credit score and this is a bit tricky when you pay mostly in cash.
However, the interest rate will not be much of a problem when you pay for your purchases in cash. When you choose cash payment, you do not have to worry about taking out a short-term loan from your creditors. The possibility of having to pay interest, fees, and even penalties when you make late payments does not bother you. Choosing to pay with cash also helps you stay away from collection calls in case you overlook a payment for a long time.
You are forced to budget
One other benefit of using cash to pay for your expenses is that you are forced to budget your money. This can be a great benefit for a lot of people, especially when you have an impulsive buying behavior. Once you run out of cash on hand, you cannot pay for whatever you fancy. This way, you are forced to budget and use your cash wisely.
One thing you have going when you pay in cash is that there are certain stores willing to give discounts for cash payments as shared by the Study site. They do this because they do not have to wait long for your payments to clear your lender. They have more flexibility when they get your payment in cash. This is the reason why you can get a certain discount from stores when paying in cash.
The downside when paying in cash
As much as there as advantages in cash payment, there are also instances when it might not work to your advantage. Here are some of them you need to keep in mind.
It is not safe to carry huge amounts of cash
When you normally pay in cash, it means that you carry with you huge amounts of cash when going out to buy items. It might not be that much when doing groceries but when you are out to purchase a big-ticket item, it means that you need to carry with you a lot of cash. This can be a problem because losing that makes it hard to retrieve.
When you lose your wallet with the cash, it is easy for thieves to dump everything else and just get the cash you have. They can instantly purchase anything they want without the money being traced to you as the owner. This is unlike in fraudulent credit card charges where your lender can take that extra security step to make sure that you are the one making the purchase. You do not have that kind of protection when it comes to your cash.
Difficult to save for big-ticket items
Speaking of buying expensive items, it is quite a challenge to try and save up little by little for it especially when you are an impulsive buyer. Fox Business shares that on average, Americans spend about $300,000 on impulse buys over their lifetime. It is an exercise in restraint to try and not use the money you know you have for something you want. You might start to convince yourself that you can pinch into that amount and that you will just put it back at the end of the month.
This mentality can lead to a severely depleted amount at the end of the month. The sad part is that you might not be able to replace the money you took out. At times, you will think that this is not really a problem since that is technically your money and that you can use it however way you want to. This way of thinking will prove to be a big challenge when you are trying to save money for a big purchase.
A lot more difficult to track your money
When you use cash all the time, you need to make sure that you keep all the receipts of your purchases. This is because you will not be getting a statement at the end of the month. Credit card statements help you review your purchases because all your spending is listed down. It is a lot easier to review where you spend your money.
The statements that come in at the end of the month can be a great tool in helping you go over and review your purchases. It is also possible that you use it to ensure that you are only using your card for items it was meant for. At times, credit card statements can also help you catch identity theft even before they are able to inflict big damages on your finances.
When you start to pay for your purchases in cash, you do lower the risk of falling victim to identity theft. However, it makes it quite challenging to monitor your expenses especially the smaller ones. You need to create the habit of keeping receipts or writing down all your expenses. This is the only way to make sure that you are spending within a budget.
Is there a middle ground?
Technology has changed the financial landscape so much that even payments are easier even without cash on hand. However, it does not mean that you have to abandon all-cash payment benefits and go adopt a cashless lifestyle. There is a middle ground that can help you take the best of both worlds and it might help you strengthen your finances as well.
You can choose to use your credit cards and even take out loans for big-ticket items to help you pay for them more efficiently. You then use cash when you pay for those loans and charges. The idea is paying for your credit card charges in full every single time and paying everything else on time. For big loans, it can help if you pay more than just the minimum or make extra principal payments if your lender allows it. This can help you save money and pay them off much faster.
At the end of the day, you need to look at every specific scenario to determine if it benefits you to pay in cash or not. There will be instances when you would be better off paying with a card or even taking out a loan. The important thing is to make sure that you pay them off on time.