Legally Thrifty: Cash or Credit? Weighing the Pros and Cons

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Are you a cash or credit person? 

It should be a simple question, really, a matter of cats or dogs.  You’re either a cat or dog person, right?  Not necessarily.  The real world isn’t as firmly set in black and white.  A couple of years ago, I was an avid credit card user who rarely carried any cash in my wallet.  I still use my credit cards but now I make sure to regularly use cash for my purchases too.  Plus, for the record, I like both cats and dogs and believe that I share characteristics specific to both of them.

Similarly, you don’t have to limit yourself to only cash or only credit cards.  Just educate yourself on the pros and cons of each method of payment, which have both practical and psychological aspects to consider.  I created a handy (but simplistic – so don’t make fun of me) list weighing the pros and cons of cash versus credit.



Cash is king! Accepted everywhere.

- Makes you more aware of the affordability of an item when you have to pay in cash.

- Easier for paying in certain situations such as splitting the dinner bill with friends, bus fare, etc.


 - Potential for money to flow faster and out of your wallet if you treat cash like Monopoly money.

- Harder to keep track of spending unless you keep all your receipts.



 - Helps build your credit score which is key to getting loans, mortgages, etc. at the lowest rates.

- No need to carry a huge wad of cash to purchase big ticket items (e.g. TV) at the store.

- Necessary for online shopping transactions where prices are often lower and discounts are plenty.

- Get rewards like cash back, hotel points or miles, just for spending via credit card the money that you planned to spend anyway.

- With online banking, you have an accurate record of every credit transaction to help keep track of where you spent money.


 - Ruins your credit score if you’re irresponsible with making payments on time and maxing out your line of credit.

- Easy to spend money that you don’t have in the bank when you can just pull out a slim plastic card.

- Easy to spend more money on an item than you would normally spend.

- Great potential to get sucked into the joy of spending on credit and rack up debt that grows with interest charges.

With great power comes great responsibility. 

As cheesy as this line sounds, it is most definitely true for the spending power associated with credit cards.  Numerous studies have indicated that consumers who pay with a credit card focus on the benefits of a purchase while those who pay with cash concentrate on its cost.  Psychologically, people who use credit are more willing to fork over a greater amount of dollars and overspend on a purchase, even if they’re the type to pay off the balances every month.  If you choose to pay with credit, you should do so responsibly. 

In sharing my personal story of cash v. credit, I’ll have to make a shameful confession.  The reason why I’ve shifted some of my spending towards cash is that I ended up building a constant balance on my credit cards in order to cover the expenses of living in New York City.  Even though I was putting in way more than the minimum payments required, the credit monster was still there, looming in the background and threatening to take me under.  I was throwing free money at the credit card companies by paying these monthly finance charges that could have been put to better use.  Like my emergency fund, or a designer bag, whichever you prefer.

So I resolved to pay down my balances and decided to start carrying more cash for my purchases.  This strategy gave me the practical benefit of keeping lower balances with the psychological benefit of making me more conscious of my spending.  I’d take out approximately $200 in cash every two weeks and try to “subsist” on the cash.  I only used my credit card for my monthly Metro Card, dinners over $50, and online shopping.  Coupled with my Excel spreadsheet for tracking daily expenses, I was able to cut down on frivolous spending.  I know that some people are better able to control their spending with credit cards versus cash, but I needed the act of spending to be more real and tangible.

In the end, know thyself and choose the method of payment that works best with your spending personality.  To each their own!



Another advantage of credit cards—the ability to stop payment in the case of a dispute over goods or services.

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