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Cash vs. Credit Cards: Which Payment Method Should You Use?

Cash vs. Credit Cards: Which Payment Method Should You Use?For many Americans, paper money and credit cards are interchangeable — and customers use whichever payment option is more convenient in the moment. 

However, cash and plastic each have its pros and cons. And if you use the wrong payment type too often, you may be leaving “money” on the proverbial table. So how do you know which to use — and when?

Let’s take a look.

When Cash Is Still King

Below are some of the situations when paper-based money is best: 

  • You’re making a small in-person purchase. It doesn’t make sense to swipe and sign plastic if you’re buying a $1 candy bar.
  • The merchant doesn’t accept credit cards. Street vendors, flea markets and fair stalls come to mind.
  • You want to avoid annoying fees like interest and annual membership charges.
  • You want to avoid racking up debt, especially if your credit history makes it hard to qualify for lower interest rates.

Read Now: Credit Cards vs. Debit Cards

When Credit Cards Still Rule

Despite the above benefits, we keep trending toward a cashless society — and it’s not difficult to understand why. 

  • Cash is useless for online shopping. Credit cards win hands-down.
  • Consumer plastic is ideally suited for larger purchases such as appliances, computers and flights.
  • Credit cards are safer to carry than large wads of cash. This is especially true when traveling overseas. Credit cards carry their own security risks, however, which is why you should shop only with merchants who take PCI compliance seriously.
  • Many credit cards offer rewards. You can rack up points and use this free money to help pay for future purchases.
  • It’s easier to track spending with a credit card. Most banks offer itemized reporting so you can see where your money is going. If your card doesn’t provide this level of detail, consider using free tools such as Mint.com.

Which Payment Option Do Small Businesses Prefer?

The payment method used doesn’t affect only you. There are pros and cons for the merchant, as well. Many small businesses accept plastic so they can reach more customers, but credit card processing carries extra fees that cash-based transactions don’t.

That said, paper-based money has its hidden costs. Every dollar must be counted, reported and deposited by hand. By contrast, credit card transactions are automatically captured and itemized — especially if the merchant uses payment integration with the software they use to run their business.

Credit cards reduce the “pain of paying” by acting as a substitute for cash. Studies have consistently shown that people spend more when they can’t see money leaving their hands. It’s the same reason why casinos use chips and carnivals use tickets.

Which Payment Option Is Best?

On the merchant side, credit cards are the clear winner. They help reduce buying friction, allowing businesses to generate more sales.

As a customer, it’s not as clear-cut: 

  • In some situations, cash is the better option.
  • In others, credit cards make more sense.

By understanding the advantages and disadvantages of each payment option, you can make better-informed shopping decisions in the future.

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Topics: Small Business Tips, Getting Started with Payments, Awareness

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