A credit card can be a great tool when used responsibly. It can net you cash or travel rewards, extend your factory warranty on large purchases, and protect your purchases in case of theft or damage. However, it may not always be the best idea to charge everything to a credit card. Let’s discuss when it would be beneficial to pay cash instead.
Payment for Services or Government-Related Payments with Convenience Fees
Often times, putting your college tuition or tax payments on a credit card can cost you 2% or more in convenience fees. This will almost always offset any points or cash-back you receive from charging the transaction. Save up for these services in advance and pay for them with an authorized withdrawal from your bank account to avoid incurring fees.
Negotiable Purchases
Some large purchases can be negotiated — like cars, furniture, or automobile and home repairs — because vendors would prefer not to pay credit card fees and/or would like guaranteed payment. If you provide a cash payment for these items, you’ll have room to negotiate for a better deal. With credit cards, the vendors know you have access to the funds, but having a finite amount of cash to plop down on the counter buys you some serious negotiating power.
Purchases with Lower Cash Prices
Gas stations often have a lower prices (usually 5 to 10 cents cheaper per gallon) for cash than for debit or credit cards. Again, this is to encourage consumers to pay in cash so vendors can avoid paying convenience fees. Keeping cash ready for these instances will likely only save you a small amount at a time, but these amounts can really add up with regular cash usage.
Of course, you should also pay cash for purchases if you haven’t yet mastered the responsible use of credit cards. If you don’t pay the balance in its entirety each month, you will incur interest and your purchases will cost you much more than their retail prices. Evaluate each of your purchases individually to decide whether it’s more prudent to pay cash or credit.
