The Advantages & Disadvantages of Using Cash Vs. Credit

There's no one right answer to whether cash or credit is better for making purchases. Depending on where you're shopping and your spending habits, either one could have the advantage. However, by looking at several factors, you can make a decision about which is best for you -- either for all your purchases, or just for certain ones.

Cash Limits Spending

When you're swiping a credit card, you wallet weighs the exact same amount as it did before you make a purchase -- not counting the added weight of the receipt -- so it's a lot easier to run up debts on a credit card. Though you might be approved for a large credit line, that doesn't mean that it's financially responsible to max out your card. If you're paying with cash, you're limited to spending what you have in your wallet, and when you're out, you have to stop.

Cash Discounts and Acceptance

Some merchants offer discounts if you pay with cash rather than using your credit card. In fact, some gas stations, takeout restaurants, doctors, jewelry stores and computer repair businesses will cut down your bill if you pay cash rather than using credit. Some businesses don't accept credit cards because of the hefty processing fees charged when you swipe. On the other hand, few businesses will turn down Benjamins.

Credit Card Convenience

No matter how good you are at math, running your credit card through the machine is always faster than counting out exact change or waiting for the cashier to count out your refund. In addition, if you lose your wallet, any cash you had in it is gone for good unless you're lucky enough to have someone turn it in. On the flip side, if you lose your credit card, you can't be held liable for more than $50 of charges -- if your credit card company doesn't waive the charges completely -- and if you report your card lost before any charges are made, you'll never be liable.

Credit Card Rewards

Especially for purchases where you can't get a cash discount, if you're going to spend money anyway you might as well get rewards. Many credit cards offer some type of rewards system that gives you points, mileage or cash back for each dollar that you spend. Some even offer bonus rewards for shopping in certain categories. For example, you might get 4 percent cash back on department store purchases or 5 percent back after you've spent a certain amount each year using the card. Paying with cash simply isn't as rewarding.