The Advantages & Disadvantages of Using Cash vs. Credit

Credit cards are convenient and easy to carry.

Credit cards are convenient and easy to carry.

The U.S. economy isn't only consumer-driven; it's also plastic-driven. Buying with credit offers some perks. You can make more immediate purchases, get rewards on credit cards and spread out the costs. However, paying with cash also offers you a number of financial benefits and even some psychological advantages.

Buying Costs

One of the benefits of paying with cash is that you won't have to pay interest. When you pull out the plastic, you typically pay anywhere from 10 to 25 percent in interest charges on top of what you paid for your purchases. Unless you pay off balances right away, those great sale prices become less valuable as time goes on.

Spending Discipline

According to a 2012 MSN Money article, psychologists have concluded consumers spend more when paying with credit. Psychologically, you think more about the value of money and consequences of spending when you hand over cash. Consumers can easily detach themselves mentally and emotionally from their spending when using cards. You don't actually hand over the money at the point of purchase. This isn't quite as concerning if you pay regular fixed bills with credit, since the amount is static whether you pay directly from your bank account or with credit.


Cash doesn't offer the same tracking ability that credit does. Your paper receipts may be the only proof you bought something. When you use credit, you not only receive a paper or electronic statement but the transactions are maintained in your lender's records. This allows you to gain access if you want to dispute a transaction or look back at a past charge. Some banks even have spending trackers that break down card payments by category such as food and grocery, clothes, utilities, and car loans.


Credit card companies often provide rewards, points, air miles and other perks to regular users. You don't get these bonuses when buying with cash. Also, if you use a credit card but pay the balance within your 30-day grace period, you essentially benefit from a 30-day interest free loan. You can buy today and pay the balance in two weeks when your paycheck comes, without any financial repercussions. Plus, you get the points.


About the Author

Neil Kokemuller has been an active business, finance and education writer and content media website developer since 2007. He has been a college marketing professor since 2004. Kokemuller has additional professional experience in marketing, retail and small business. He holds a Master of Business Administration from Iowa State University.

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