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Updated: Apr 04, 2023

Cash or Credit Card: Which is the Best Way to Pay?

When it comes to making a purchase, should you use cash or credit? Here's how you can discover the payment method that will work best for your financial goals.
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The world of personal finance is one that’s full of staunch opinions.

Everyone wants to tell you what’s right and what’s wrong, with little regard to how your particular situation changes things. Nowhere is this truer than in the debate between using cash or credit cards to make purchases.

So, in the question of which is better, cash or credit card, what’s the answer? It depends.

While that sounds like a non-answer, this isn’t so different from many of the answers that should come up in personal finance discussions.

Saying “it depends” doesn’t mean there are no best practices to follow, it just means that the best practice will change based on your personality, your relationship with money, and your goals.

Based on all that, how can you decide which choice is best for you in the debate between cash and credit? Read on to find out.

Before You Decide, Understand Your Money Management Style

It’s pretty hard to make a right decision about anything before you fully understand how you intend to use that thing. In the case of cash vs. credit card, you need to understand your preferred money management style.

For example, if you’re all about automation, cash is going to be more frustrating to deal with. But if you like to visually see how much money you have available for a purchase, cash could be the best thing for you.

This isn’t to say that your money management style should eliminate certain options, but it can help you understand what your needs and goals are to help you find the process that will align with them most efficiently.

How to Discover Your Money Management Style

If you haven’t already put some thought into your money management style, don’t worry. It’s as simple as looking back at your tendencies:

  1. Do you operate better by automating your payments?
  2. Do you tend to spend more when you use cash or when you use a credit card?
  3. What type of spending (cash or credit) usually makes you feel more comfortable and in control?
  4. Are you a one-method only type of person or do you like to mix and match based on what you spend on?
  5. What’s your biggest financial fear?

Since answering these questions may seem easier said than done, I took a crack at them myself to show you what I mean:

  1. I like to automate payments from my bank account to my lenders (i.e., my student loan and cell phone bills). I don’t like to automate anything to my credit card or to automate subscription payments because it’s too easy for me to lose track and forget these payments are happening. I have a mixture of enjoying automation and needing to feel the pain of the money leaving my bank account to keep my spending in line.
  2. Hands down, I spend more on my credit card. That thing is just too easy to swipe. Cash in my wallet dwindles as I use it. See a theme developing? I need to feel the pain of my money leaving me to keep my spending in line.
  3. Cash makes me feel more in control. However, if I’m making a purchase online, I feel more comfortable using a credit card (versus a debit card). The reason is if my card is compromised, I’d rather it hit my line of credit and not the money in my bank account.
  4. I like to mix and match. I don’t mind using multiple methods if it helps me reach my goals and makes me feel more comfortable. See the answer above.
  5. Going into debt.

As you read my answers, you can probably see a theme: I feel a strong need to keep my spending in check because I have a deep fear of debt.

Therefore, cash generally works better for me when I’m making purchases. I can see it, I can count it, I can feel exactly what’s happening. Unless I’m purchasing something online, cash is my preferred buying method.

Want to see another example? After many, many (many) budgeting conversations with my husband, I know his answers would vary quite a bit from mine. Here’s what he’d likely say:

  1. Automation. All day every day.
  2. Cash is too hard to track and thus easier to spend. Credit cards list all your purchases, and I like to review my purchases monthly both on a transactional level and to see the total amount of spending I did.
  3. Credit. See the answer above.
  4. One method if possible. However, I still carry cash because there are vendors in my neighborhood that don’t take credit cards and because it’s always a good idea to have cash on hand just in case.
  5. On a day-to-day budgeting level, restriction. I work too hard for my money not to be able to enjoy it at all. Overall, not having enough saved for the future (i.e., retirement or preparing for kids) is my biggest financial fear.

See how different his answers are? It certainly makes for some very interesting budgeting conversations at home, but it’s an important example of why financial advice should never be black and white.

And now that you’ve seen some very different answers, can you answer these questions for yourself? Here they are again:

  1. Do you operate better by automating your payments?
  2. Do you tend to spend more when you use cash or when you use credit card?
  3. What type of spending (cash or credit) usually makes you feel more comfortable and in control?
  4. Are you a one-method only type of person or do you like to mix and match based on what you spend on?
  5. What’s your biggest financial fear?

After you look over your answers, you should be able to identify a theme or a pattern that will help you decide the money management style that could work best for you. And if the answer is both cash or credit, depending on the situation, that’s perfectly fine as well!

Before you completely firm up your plan, there are some additional considerations to take into account.

What to Consider Before You Decide Between Cash or Credit When You Buy

Your preferred money management style should play a large role in the decision between cash or credit for purchases, but there are a few other things you might want to consider before you officially decide. Here are a few:

What’s More Secure, Cash or Credit Cards?

Can you stomach another, “it depends” answer? Because it’s coming…

In deciding which is more secure (cash or credit), the answer is that it depends on where you’re making a purchase.

If you’re buying something in person, nothing can be more secure than cash. If you pay in cash and a retailer endures a data breach, you can rest assured that your money is not at risk.

If you’re buying online, you might consider a credit card to be more secure than a debit card (the plastic equivalent of cash).

Technically there’s not a difference in security, but there is a difference in what you’re more likely to risk: the money in your bank account or the credit you have available to you.

And, for another twist, there’s the question of what happens if your wallet or purse is lost or stolen.

Suddenly, cash is a lot less secure because you can’t get stolen cash back.

But if your debit card is stolen, you can call your bank immediately and ask them to freeze or close your account and send you a new card.

If any fraudulent purchases were made, you can dispute them and try to get them taken off your account.

So the question of security depends on usage. If you’re traveling, you might want to carry cash and credit (one to prepare for stolen financial information and the other to prepare for a lost or stolen wallet).

If data breaches are a big fear of yours, use cash at retail stores. And if you’re doing a lot of online shopping, you might find that you feel safer using a credit card than a debit card.

What’s Going to Help You Build Credit, Cash or Credit Cards?

Finally, a straight answer! Cash cannot help you build credit, only credit can do that.

But (and this is a big but), if you go into debt, then using a credit card actually will hurt your credit. In that case, your credit was better off with cash only.

For this one, use a credit card if you’re sure you will make a practice of paying it off before the end of the billing cycle each month.

That’s the only way to avoid interest charges and ensure that you don’t go into credit card debt.

And since my personal biggest financial fear is debt, I pay my credit card off as soon as I make a purchase on it.

I can do so quickly and easily online from my bank account, and that enables me to guarantee that I won’t forget.

What’s More Likely to Net Rewards, Cash or Credit Cards?

This one’s another relatively simple answer: you can’t get rewards for using cash.

You could potentially get rewards from using your debit card, but based on your money management style, that may not be all that different from using your credit card. (In other words, if a card is easier to swipe than cash is easier to hand out, you could accidentally overspend on a debit or credit card).

If rewards are your thing, credit cards are going to be the best method for you to make purchases with.

Just make sure you find the credit card that gives you the type of rewards you want the most. Most come in the form of points, miles, or cash in reference to retail gift cards, travel rewards, or cash back.

Some rewards credit cards will even offer you rewards for the different types of spending you do.

For example, some have extra rewards for purchases made at grocery stores or gas stations or particular airlines or hotels.

If you can turn your normal spending into rewards that benefit your financial goals and desires, then using credit cards to do this is a great method - if, and only if, you don’t go into credit card debt in the process.

What’s Better for Tracking Your Spending, Cash or Credit Cards?

For many, credit cards are probably the easier buying option if tracking your spending is a high priority.

At any given moment, you can log on to your credit card account and see how much you’ve spent and what you’ve spent it on.

For others, that might be too detailed of an approach - or a useless approach if the credit card leads to ease of overspending.

If that sounds like you, you can track cash with an app like Mint. All you have to do is log onto the app as you make your purchase. That way it will be recorded just like a credit card purchase would be.

And if you’re traditional - or prefer manual methods of tracking - there’s always Excel or Google Sheets for tracking. In this case, cash or credit cards might be about the same, as long as you keep your receipts.

As Always, Listen to Your Gut - and Measure Your Results

Chances are, you had an idea of your own answer to the question of cash vs. credit cards before you even clicked on this article.

We all tend to have financial methods we prefer, but we still want to see if what we’re doing is the best thing for us.

If you have a gut instinct, listen to it. No one knows you better than you do, and self-awareness is perhaps the greatest tool in personal finance (and life in general). However, that doesn’t mean you shouldn’t measure your results.

Pick a method and try it for a month or for a quarter. Then look back. Did your spending line up with your priorities?

Did you find this method easy or difficult? Is there anything you would change?

The results should either confirm your gut instincts or highlight areas you could improve upon.

This is how you can mix intuition with research to come up with your best answer to any financial question you have.

And, above all else, remember that your answer to this and all financial questions will change over time as your priorities change.

If you keep checking in with yourself, with your goals, and with your methods, you’ll be ready for these changes.

Remember, you make what you measure. Are you ready to start seeing some real results in your financial picture?