When Should You Pay in Cash?

By Sheryl Nance-Nash · 5 minute read

It may seem old school to whip cash out of your wallet to pay for your purchases. But there are times when good-old greenbacks can actually be a better way to pay than tapping your credit card.

While credit can be a quick and convenient way to pay, using cash for many of your routine transactions can be more secure. Paying in cash can also help you save money, stick to your monthly spending budget, as well as duck savvy marketers.

Read on to learn when it’s better to pay with cash, and when plastic may be the ideal way to go.

The Benefits of Cash

You May Get a Discount

You may be rewarded for paying cash, like paying a lower price at the gas station or when you get take-out at a restaurant.

Many businesses pay a fee for accepting credit and debit cards, so they may be willing to charge you less if you’ll pay in cash. If you frequently fill up your tank, saving even 10 to 20 cents per gallon can add up to significant savings over time.

It Can Help You Avoid Overspending

When you tap or swipe your credit or debit card, you don’t physically see your money leaving your account. Since there’s no sense of immediacy or consequence, it can be easy to spend more than you originally intended.

If, on the other hand, you leave home with only the amount of money you need for the day in cash, your spending is likely to be more mindful and you may have a better chance of sticking to your budget.

Recommended: 9 Tips to Stop Overspending

There are Fewer Security Risks

Yes, someone could rob you when you are carrying cash. However, there is less risk of identity theft or your information getting stolen when you pay with cash vs a debit or credit card.

You Can Avoid Fees

Cash is a one-shot deal — the purchase you made won’t end up costing you a penny more. With credit and debit, however, you can end up paying additional charges down the line, from late fees and overdraft charges to interest payments on debt.

Recommended: How to Avoid Overdraft Fees

Times When You Should Pay in Cash

Your Tab is $10 or Less

It can be a good idea to carry cash for small purchases. Many retailers have a minimum amount of money you must spend in order to use debit or credit. If your purchase is under, you’ll have to throw in extra things (you probably don’t need) to meet the minimum.

When Shopping at a Small or Local Business

Small businesses often offer discounts for cash payments, since it helps them save on bank fees. This can be an easy way to support your local businesses and save a few dollars at the same time.

You Want to Keep Advertisers at Bay

You may have noticed that after you buy something with a credit or debit card, you often get hit with ads and offers for similar products. That’s because retailers can track their customers’ spending and share their information with a third party, who can then target them with ads.

This can be annoying, and also lead to more spending if you’re enticed by an offer. Using cash makes it much harder for businesses to collect and share your information.

Times When You Shouldn’t Pay With Cash

Buying a House

If real estate is hot where you live, you may be tempted (if you can) to plunk down cash to ensure you get that dream house before someone else does.

While buying a home with cash vs getting a mortgage may get you the house, it may not be the most prudent move in the long run, especially if it wipes out all of your savings.

A mortgage has tax benefits and timely payments can help you build good credit. Also, there could be better uses for all that cash, like investing in the stock market or elsewhere.

Business Expenses

If you own your own business, have a side gig, or do freelance work, it can be better to use credit (or even a check) to pay for business-related purchases. You’ll likely want a paper trail so you can deduct these expenses on your tax return.

Another potential perk of using credit is that it may offer some purchase protection in event something you buy for your business that breaks or gets stolen soon after you purchase it.

Paying Service Providers

You may think a service provider, whether it’s an electrician or an auto mechanic, did a good job, but only time will tell. Using credit can offer you some protection in the event that you experience problems with a service after you’ve already paid for it.

Renting a Car

Often your credit card will provide insurance on car rentals, but only if you use that form of payment, as opposed to debit or cash. Using credit for the car rental can help you avoid paying for something you don’t need to purchase.

Recommended: 10 Tips for the Cheapest Way to Rent a Car

You’re Looking to Build Credit

If you need to build your credit score, one way to accomplish that is to use your credit card on a regular basis and show that you’re responsible by paying what you owe each month, consistently and on time.

When Buying Electronics

Using your credit card instead of cash for electronics can be a big advantage if your credit card offers extended warranties as a cardmember benefit. This allows you to get peace of mind without having to pony up for the store’s warranty. And, you can simply pay off the balance as soon as the bill comes.

You’re Looking to Track Your Spending

If you’re looking to see where your money is going so you can track your spending and set up a monthly budget, it can be easier if you pay with credit or debit.

Your financial institution may even offer you a pie chart of your spending, broken down into categories. Seeing everything in black and white can help you become better at budgeting.

Alternatives to Using Cash

Cash vs Credit cards

A credit card can be a good alternative to cash if you are able to pay it off in full every month, and you do. If managed well, credit cards (even secured credit cards) can help you build credit to buy a home or another large purchase in the future.

Cash vs Debit cards

A debit card can be a good substitute for cash, as long as you know there’s money in the bank. By using a debit card, you’re not incurring any new high-interest debt. As long as you are not incurring any overdraft fees, or withdrawing money from ATMs that charge high fees, debit cards can be a simple way to make purchases.

Cash vs Financing or Loans

It can sometimes be better to pay for a major purchase, like a car or a home, with a loan rather than cash if the interest rate is lower than what you could likely earn by investing that money.

However, you’ll also want to keep in mind that there is risk involved in investing in the stock market, so there is always a chance that you could lose money.

Recommended: Leasing vs. Buying a Car: What’s Right for You?

The Takeaway

Even as we move towards a more cashless society, it can be important to keep cash in your wallet and use it for certain everyday expenses.

Paying in cash can help you garner discounts at local businesses, stick to your budget, avoid paying overdraft and interest fees, protect against identity theft, and keep advertisers from targeting you.

There are times, however, when it can make more sense to pay with credit rather than cash. These can include: when you’re making business purchases and buying electronics and/or you’re looking to build credit or closely track your spending.

Another easy way to keep close tabs on your everyday spending is to open a SoFi Money® cash management account. With SoFi Money, you can easily track your weekly spending — and make sure you’re not going overboard — right in the dashboard of the app.