Cash vs. credit: Which to use?

Learn more about the differences between cash and credit cards and when you might choose each as your payment option.

If you’re like most Americans, you may be using your credit card more and more these days. According to the Federal Reserve, card use is growing, and the number of ATM cash withdrawals is falling.

But is it better to pay by cash or credit card? That could depend on what you’re buying, what payment options you have available and what you want or need from the purchase. Read on for some things to consider when you’re deciding whether to use cash or a card.

Cash vs. credit

Cash is money that includes paper and coins. Paying with cash immediately subtracts a portion of your funds. And if you buy an item and pay in full, that’s the end of the transaction.

A credit card lets you borrow money. When you use your credit card for purchases, your lender pays the seller for you. Generally, you can use the card over and over, up to your agreed limit

You repay the balance later, when you get your bill. If you don’t pay in full by the due date, you could be charged interest on what’s left. And depending on the card, you might have other fees.

When could you consider using cash?

If you have cash, you can consider using it anytime. It’s accepted most places, it’s quick and it carries no risk of identity theft. Here are some other situations when you might want to use cash instead of credit:

  • When you want to avoid fees. If you can’t pay a credit card bill in full by the due date, you might face interest charges and late fees. But when you pay in full with cash, you typically won’t face any fees or interest.
  • When you want to keep credit use low. The Consumer Financial Protection Bureau (CFPB) says experts recommend keeping your credit utilization below 30%. So if you find yourself going above that, you could consider using cash on hand. 
  • When it’s more convenient. Maybe you want to tip a driver or a waiter. Or your favorite market stall prefers cash. Sometimes cash can just feel easier.
  • When you’re having trouble staying on budget. If you’re spending too much on your credit card, paying with cash on hand might help you stick to your budget. The CFPB says one option is to pay cash for anything under $20.

Is using a debit card the same as using cash?

At first, it might seem like a debit card is more like a credit card. But in many ways, a debit card is similar to cash. It’s issued by your bank and lets you make instant purchases by accessing the money in your checking or savings account. As long as you have enough money in the account to cover your purchase in full, you won’t fall into debt and you won’t owe any interest. 

Debit cards can also be safer than cash because they come with some of the same protections as credit cards. For example, some banks offer debit cards with features like card lock and $0 liability for unauthorized charges. So if your card is lost or stolen, you will not be responsible for charges you did not authorize.

When could you consider using a credit card?

There can be many advantages to using a credit card when it’s done responsibly. For example, credit cards give you added buying power when you need it and can come with rewards and other perks. Here are some other situations when you might want to use a credit card instead of cash:

  • When you want something back. With a rewards credit card, you might be able to earn cash, miles or points with your purchases. Some credit card issuers, like Capital One, also offer access to premium experiences like concerts or sports events with some of their cards.
  • When you want to build credit. Responsible use of a credit card can help you build or rebuild your credit history and improve your credit scores. And that could help you in all sorts of ways, from getting better interest rates to showing you’re a responsible applicant for a lease.
  • When you want to feel in control. Your credit card may also have digital tools for monitoring and managing your finances. At Capital One, you can set automatic payments with AutoPay and manage your account on the go with the Capital One Mobile app.1 Plus, you can monitor your credit with CreditWise from Capital One. It’s free to use, even if you don’t have a Capital One product.
  • When you want protection and security. Many cards offer unauthorized charge coverage and security features to help you keep your money safer. For example, at Capital One, if your card is lost or stolen, you will not be responsible for charges you didn’t authorize.2 Eno, your Capital One assistant, alerts you if it spots suspicious activity on your account. Card Lock lets you instantly lock and unlock your card as needed if it’s lost or stolen.3 And you can shop more securely using virtual card numbers.
  • When you’re traveling. Some credit cards don’t charge foreign transaction fees. You can check the fees section in a card’s terms and conditions to see whether yours is one of them. None of Capital One’s U.S.-issued credit cards charge a transaction fee if you make a purchase outside the country. And at Capital One, you can also get an emergency replacement card if yours is lost or stolen.

Understand your spending

Decisions about when to use cash or credit are personal. What’s right for you can depend on what you have and what you need in the circumstances. But however you end up managing your spending, learning some fundamental rules around budgeting and goal setting can help you understand your habits. And remember, if you use a credit card, you’ll need to use it responsibly to enjoy all the benefits it offers. 

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