Devil's Advocate 

Pay Cash For Everything

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This is a Devil's Advocate post.

Most savvy consumers have learned that paying with credit cards can earn them hefty benefits such as points good for straight cash or other goodies like gift cards. While credit card companies do provide fraud protection, typically $0 liability but at worst $50 liability, there is something very protective and romantic about the old greenback. When you hand over a twenty dollar bill to the kid behind the register pay for something, your liability is limited to twenty dollars. That kid can run off with your portrait of Andrew Jackson and you never have to worry about him silently stealing more Jacksons (or Hamiltons or Benjamins) out of your wallet or purse. Moreover, you never have to call up the U.S. Mint and argue over how you never purchased that all inclusive vacation package to Antigua or the 9283049823″ television.

Now, there are a lot of good arguments for using credit cards, such as warranty protection, cash back, etc; but hardly anyone, except those fighting debt, argue the other side… the Devil’s Advocate side.

I drew the motivation for writing this article after reading another article elsewhere warning that you shouldn’t pay for a U-Haul rental with a credit card because they will charge you after the fact for add-ons and other “penalties.” (the website claimed this was a relatively standard U-Haul practice that I can neither confirm nor deny) While you can always challenge these fradulent charges, and you likely will, that takes time and will probably ruin your day. No one likes ruining their days.

Shady Businesses/Employees Can’t Screw You Over Later
This is the biggest reason why you may wish to consider using cash at some institutions. First, even if the business isn’t shady, a rogue employee can steal your credit card information and commit all types of fraud with it. Secondly, if the business wants to ding you for extra fees they have practically unfettered access to a pot of money with your name on it. Is that ethical? Perhaps not but that hasn’t stopped companies from doing it before.

Cash Is Very Real, Spending Is Very Real
Do you know why casinos use chips and not just cash? It’s because you don’t identify money with those chips just as you might not identify money with the credit cards when you spend it. It’s a very powerful concept that both industries have learned and it’s something many debt fighters out have been saying for years. It’s so much easier to spend on a credit card because you get immediate gratification but none of the “work” until the bill comes at the end of the billing cycle. If you use cash, you think twice before handing over real money (even though it itself is a symbol of purchasing power) because it’s real. You remember what you did to earn that dollar and you won’t let it go so quickly as you would with credit.

Liability Is Limited
As I mentioned earlier, your liability is limited to what you actively and knowingly hand over. Sure you give up that wonderful 1% in cashback benefits, but you also give up 100% of the possibility that someone can steal your card and buy all sorts of stuff with it without your knowledge. Even with $50 liability, that’s still a headache you can avoid if you just use cash.

Cash Is Faster
We’re not talking light years faster as studies have shown the difference between a credit card transaction and a cash transaction is only a few seconds (we’re talking retail sales) but when you add that up over your lifetime, that’s precious days added onto your life. You like extra days right?

Ultimately, the case against credit cards is tenuous because they truly are powerful vehicles if you are careful with them and use them responsibly (I sound like Yoda) but sometimes it may be safer just to use cash. You don’t have to swear off credit cards entirely but there may be situations where using cash is a safer option from a liability perspective. Thoughts?

{ 21 comments, please add your thoughts now! }

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21 Responses to “Pay Cash For Everything”

  1. “Ultimately, the case against credit cards is tenuous because they truly are powerful vehicles if you are careful with them and use them responsibly (I sound like Yoda) but sometimes it may be safer just to use cash. You don’t have to swear off credit cards entirely but there may be situations where using cash is a safer option from a liability perspective.”

    This is the best two lines of the whole article, says it all for me! I agree that is does come down to using them responsibly if they are going to be powerful vehicles. I think paying cash depends on the situation as every person has a different financial makeup. I say just do you due diligence before doing anything 🙂

  2. Jeremy says:

    Another great DA post, Jim. This is one I have actually written about at some length in the past and I actually agree that for some people they really should be using cash. Again, this doesn’t apply to everyone or for every single purchase for the reasons you mentioned, but for those people who find themselves unable to stick to their budget or always seem to be spending more money than they should this is a great tip for them.

    You touched on it pretty well and that is cash is a “real” thing. When you physically have to look in your wallet or purse and see how much money you have, and then pull that money out and give it to someone you have an immediate grasp of the consequences of that purchase. Unlike when you swipe a card and only get a number on a receipt or see the number on the cash register, we know what that amount is but isn’t strongly tied to money for many people.

    The problem with cards is that the little purchases always seem like just that, little. A coffee here, grabbing lunch out there, picking up a snack at work are all little purchases by themselves. When you use a card it is easy to discount them as insignificant, but when you have a fixed amount of cash on hand and you see that amount start to dwindle in size you begin to make more conscious decisions before freely spending the money even if it is for something small.

    I had to do this for my wife because she was constantly questioning where all the money was going. So, for a few weeks we both just carried an amount of cash we had budgeted for using throughout the week starting on Monday and wouldn’t use the debit card at all. After two weeks of that she found that her weekly spending for everyday items dropped from around $45 a week to closer to $30. Nothing changed other than the fact that it was harder to pull out 6 or 7 dollars for lunch, or swing into the gas station for a soda and such when you know you only have a certain amount of cash available.

    Anyway, for some of the reasons mentioned in your post I think using cash could go a long way in helping people curb their spending. Clearly some people are naturally good at budgeting and can use cards for everything without a problem. But I do think that in general the ease of using debit/credit cards has caused many people to be more inclined to spend more money than they should.

  3. Yan says:

    A kid behind the register running with my twenty dollars? I can hardly imagine that. My wallet with cash stolen — happened not once. Thanks I never carry much on me. Verdict – not convinced. A $5 casino chip is a $5 casino chip to me. Of course, YMMY

  4. plonkee says:

    I actually use a combination of cash and card (like most people I imagine). I find that the arguments against using a card a predominantly psychological – that you won’t spend as much with a card. In practice I find that if I have cash, I have a need to spend it, so I have to limit the amount of cash I have on me at any one time.

  5. Pbanker says:

    I prefer to use credit/debit, but sometimes cash is necessary–traveling, for instance. I also agree though that I think twice before dropping a Benjamin vs. swiping my card.

  6. Roger says:

    You can negotiate with cash in hand as well.

  7. Debt Hater says:

    I’m like plonkee. I limit the amount of cash I carry as well — if I don’t have cash for a small purchase, I’m not whipping out a credit or debit card. Cash burns a whole in my pocket.
    HOWEVER, since I have yet not developed the discipline to use credit cards to a point where I can easily pay off the balance each month, I can’t use them either.
    Sooo… I use cash for most things — especially to make sure I don’t go over budget in a category — but I use credit for large purchases (plane tickets for example) and immediately pay it off. That I way I build some rewards, but don’t get in any more debt trouble!

  8. Moneymonk says:

    Everyone knows that CASH is KING !! It’s been said that most people tend to spend 15% more when using credit cards.
    One businesses reconize that, they started accepting credit cards. McDonalds has seen a significant increase in sales after they started accepting credit cards.

    Bottom line, if you are a spender by nature, you need only use cash.
    To carry a cc it takes discipline.

  9. Ray says:

    “Do you know why casinos use chips and not just cash? It’s because you don’t identify money with those chips just as you might not identify money with the credit cards when you spend it.”

    Excellent point. Even though I use my credit cards and debit cards frequently, I don’t closely associate them with cash. On the other hand, when I spend my cash it is very real. I’m a visual person, so maybe the act of seeing my money actually leaving my hands or wallet when I spend makes it more real than when I use a credit card.

    Not only can cash be an excellent budget control tool, but using it could help a person improve their credit score as well. How? Using cash would allow a card holder to reduce their credit card usage, and by combining this with paying down balances to 25% of total avaliable credit or less, they would be able to boost their credit score.

    Cash Is Faster“. Not only can cash save you time, but in certain retail transactions, it can save you money in the form of a discount – of course this depends on your ability to negotiate with merchants.

  10. I have been using cash much more as of late for my personal spending and use my credit card only for business purchases.

    What I find happening in my home is the value of cash is taking hold. By that I mean dealing with real cash brings the actual value of the money to our thoughts whereas credit and debit cards seem to have a way of removing the value of the money from the equation.

    The best part of using cash only has lead to us saving more and our bank fees are down big time from taking out cash once per week. Most banks charge a service fee for every debit transaction. My bank allow 10 free withdrawls per month. At one point my debit transaction were pages long and each transaction was costing $1.00. I have save $100 per month using cash!

  11. I have been using cash lately for my personal spending. What I have found is that using cash brings the value of money to the forefront. When using debit and credit cards you simply don’t “see the money” hence removing the value of money.

    It really helps when teaching my kids about money too. They get to see it and quite often I will have my kids pay for merchandise to teach them there is only so much and the cash in hand is all we have. Real cash has been a valuable way of teaching my young kids about managing finances.

  12. Tim says:

    they key is self-responsibility. even with cash, you can spend all of it, get yourself in debt through cash and/or checks, etc.

    i agree, credit cards are easy and disassociate from the money. so does having a bank account. cash in my wallet usually means that i will spend it all. debit card normally makes me think twice about spending.

    i understand this is a devil’s advocate post, but the cash scenario is tenuous especially if you travel. now you can mitigate risk by getting traveler’s checks, but not every place accepts them. moreover, there are plenty of places and companies overseas that do not accept reservations etc without a card.

    again, it all goes back to self-control and responsibility. personally, i think people feel more like hotshots if they spend cash and are more frivolous when they have cash..especially large bills.

  13. I think this whole debate around whether to use cash or a debit card or a credit card or, heck, *barter* with actual objects and services comes down to one thing:

    Use whichever abstraction can feel real in your mind. In my mind, all of these payment devices just boil down to numbers (i.e. currency amounts). So if you can make the numbers feel real to you, then the payment device won’t matter and you can use whichever one is most advantageous (e.g. cash back credit cards). However, if certain payment devices feel more real to you than others, then use those payment devices.

  14. Kevin says:

    I spend more money when I use cash than I do when I use my debit card. When I first started working and opened a bank account I got a checking account and a debit card. I never associated money with paper. I have used plastic constantly. Using only my checking account I can use my online bank register with the one I keep myself.

    • cash n. carry says:

      if you didn’t associate money with paper, what did you associate it with. Your pay check is paper printed with the value of money to be paid to you. Even with direct deposit your statements are in written form if not on actual paper. And when you get your receipts from your purchases the amounts of your spending are recoreded and handed to you on……paper. Everything about it involves paper.

  15. Mike Wanner says:

    Jim – the best thing for kids out of college is to get a credit card right at the beginning of the year and get the education on how to use it, what fees/responsibilities are involved… But if you leave that up to the educational institutions or, worse yet, the credit card companies they will likely not follow suit to those words or wisdom of not spending more than you make. This needs to begin with family. What if the family (mom and dad) don’t instill these values or right behaviors around spending… then help is definitely needed.

    My wife and I are buying her dads house and the first thing the bank looked at is that I have had a credit card since freshman year of college and I always paid it on-time and never spent more than I earned. In fact, I really only used it for emergency purposes.

    PLEASE DON’T RECOMMEND USING CASH EXCEPT FOR A CERTAIN NOMINAL FIGURE – SAY OVER $200. Why? Because every purchase, aside from points and rewards, you are earning credit. If you look at how credit is reviewed by the big three, they like to see a balance that is indicative of current income-monthly expenses. Don’t ask me why it helps with your credit score, but I pay it off every month since 15 years ago and yet I have a neighbor who runs a consistent $500 balance and his credit score in this area is 75 points higher… Crazy!

    My point is learn how you build credit, use cash for only big purchases that are one time events. Good rule of thumb my wife uses, if she likes a pare of shoes I make her go to the bank, withdraw the cash and right before she get’s there I ensure she only has enough for one purchase. One way we control our spending! She does the same thing to me. Lastly, she is required to tell the bank teller what the purchase is for, you should hear some of the responses. Why don’t you put that on a credit card? Is this all the money you need for shoes? Are you buying anything else?

    The rich, like my father, always paid cash, very seldom did he use a credit card. Maybe there is some truth to having to pay with cash. But only, I believe, after you have built up your credit.

    Look at the richest people on Forbes.. they all used the most common saying on how they got rich: Using OPM… Other People’s money. CREDIT!!!!

    Thanks for letting me participate in this discussion.

    • cash n. carry says:

      Actually that is not true about Forbs richest. The one most common answer the Forbs 400 wealthiest give for their achieving and MAINTAINING wealth is staying and avoiding debt. And on the rare instances it is used, to pay it down as soon as poss.

      Your dad has the answer. He is right and eventually as you age you will come to see this truth.

  16. Paula says:

    I’ve been using mainly cash for several years now. Whenever I stop doing this and use my debit card I over spend. I find I spend less when I get cash after payday and separate the cash into different envelopes for various payments (gas, groceries, lunch money, etc.) This is an old budgeting method known as the envelope method. I believe it used to be common before debit and credit cards were universally available.

    The only problem I’ve come across is since I have used credit for years, my credit report only shows a couple of negative items from 5 years ago with no recent activity. so now I’m trying to get a credit card, just to build up a positive history. The plan is to use the card once a month to buy something small–$25.00 or so and pay it off every month. For the most part, I’m going to continue to use cash.

  17. cash n. carry says:

    I do not understand this love of borrowing. I am 44 years old and have always paid cash in my life for everything except personal residence. If you don’t have enough money to pay for it, it means you CAN’T AFFORD it. This simple logic goes back thousands of years. It is how it has been since the beginning of time until these last 50 years.

  18. ladymiss says:

    I think family has a lot to do with it, at least in my case. My parents used to borrow from me every mont because they were overspending. For that reason I found myself always short and I ended up using cards. I remember I used cash only at the beginning, and I plan to return to it.

  19. ladymiss says:

    I just wanted to add, my parents discouraged me from doing what I love because of their love of interest, so maybe I should go back at that too. In that way there won’t be any cash to borrow and I’d be doing what I enjoy. That’s like double KING (it’s an icecream). Sweet

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