When to Pay With Cash and When to Avoid Using It
Credit and debit cards have become the payment method of choice for many consumers, and although debit cards are similar to cash in the sense that the money comes directly out of your bank account, there are times where using actual cash is a better idea. On the other hand, having too much cash around can encourage overspending because it’s easy and convenient. Credit cards often offer reward points, whereas cash can never do that. Also, credit and debit cards include some insurance since most companies will reimburse any fraudulent charges; when you loose cash, you lose it for good.
So when is the right time to use cash and when is the right time to use a check, debit card, or credit card? Some of your decision will be based on your own personal finances and how careful you are with money, but there are certain times that using one payment method is best.
1. Use cash if it’s the only option
Sometimes you will have to use cash. If you go to a yard sale for example, you should bring cash. However, you should decide ahead of time how much you are going to spend, otherwise you will use your cash to purchase impulse items that seem like a good deal at the time but that you probably don’t actually need. If you are looking for a big-ticket item, go through the classifieds and determine exactly which sales you are going to go to.
You also might need to use cash if you are purchasing fresh produce at a farm stand or farmer’s market, bake sale, lemonade stand, or sometimes you will need to send exact cash when sending money for your kids’ school trips or activities. It is also polite to give babysitters cash when possible (unless you pay them for full-time care.) It makes sense to pay sitters for one night of babysitting; many will take a check, but it can be difficult for a high schooler to get to a bank to cash it.
2. Use cash if you are worried about your personal information
While it’s true that most debit and credit card companies have policies in place to protect their customers, if you have a bad feeling about a particular place or transaction, you’re better off paying with cash. If your debit card is stolen, you will need to notify your bank immediately, but your work might not end there. In addition, you will need to check to make sure no fraudulent transactions took place before your card was canceled or suspended. Then you will have to report the fraudulent transactions if you find any, wait while your bank looks into the issue, and possibly still cover part of the damage.
If you go to a restaurant that makes you uneasy for some reason, use cash if you can. The same is true if you have to pay someone you don’t know or you don’t trust; although it would be difficult, a smart thief could use the information on your check to harm you as well. Trust your gut instinct, and if you aren’t sure, be safe rather than sorry.
3. Be careful about budgeting
Some people will tell you that if you want to stay on a budget, you should use cash, and this makes sense. One idea is to try to exist on just cash for a few weeks. This should limit your overall spending, especially impulse spending. If you set aside exactly what you need and vow not to use a debit or credit card, then in theory you will stay on budget. Another idea is to separate cash into different envelopes: cash for groceries, cash for utilities, etc.
The only problem with this is that it doesn’t take into account money for emergencies and also, for some people, having cash sitting around is actually more dangerous than using a debit card. The other problem is that you will have to keep track of the money very carefully, and this really only works for people who are extremely organized. You also risk losing a lot of money if you lose your wallet or have something stolen.
4. Be careful about items that you might not keep
Returns are tricky; if you use cash, you can easily return any item and get an instant refund. On the other hand, if you get cash back, you might be more likely to spend it in the store again. Also, if you lose your receipt, you might not be able to return an item, or a store customer service representative might only refund you what the most recent cheapest price was, in which case, you might not get back as much as you paid.
However, if you use a credit card, depending on the store and your card company, it may take a few days to get the money back on your card, or you might have to take store credit if you don’t bring your card with you. One positive is that if you lose the receipt, many stores can look up your transaction by swiping your credit card.
5. Use cards for items that you can get points for
If you can get points for using a card, and are careful enough to stay on budget and not use your cards irresponsibly, then use away. Most people have rewards cards that give points or miles for travel, business, entertainment, gas, or grocery purchases. As long as you are able to pay your credit card back quickly, you should certainly capitalize on any rewards programs you are part of. In addition, you can ask utility companies to automatically charge a particular card each month; that way you can maximize your rewards and plan for your expenses. Just be sure to check your card balances regularly and keep track of expenses.
There are many occasions when using cash is the right thing to do, and many others that require a credit or debit card. Sometimes the choice will really be up to you. Checks are still helpful when you have to send something in the mail, or you are paying for something that costs more than the cash you have on hand. Thankfully, most stores are now accepting any of these payment methods, but you will still sometimes have to use a particular one.