Not so long ago, credit cards were seen as an extravagance. If you wanted to make a purchase, chances are you’d save up and make it with cold, hard cash in hand. Obviously, that’s not the case anymore.
Credit has replaced cash as the dominant form of currency. Credit history is so important to so many different areas of finance, many experts now advise consumers to use credit almost exclusively. Are we quickly moving to an entirely paperless economy?
Not quite yet. Cash may not be the driving force it once was, but it still has plenty of uses. The immediacy of handing over a check or stack of bills gives physical money an advantage in certain situations, and makes it more alluring for certain kinds of retailers.
While most people take out a mortgage when they buy a house, sometimes it’s better to buy in cash if you can afford it.
“If you have enough cash, then you can definitely outbid everybody or get a substantial discount if you buy in cash,” said Ruby Escalona of A Journey We Love.
Not only can you get a significant cash discount, but being a cash buyer gives you the upper hand in negotiations. Cash buyers stand out in a popular housing market.
Even if the seller will make more by choosing a traditional buyer with a mortgage, they might pick a cash buyer who doesn’t need to obtain financing. This is even more vital when the seller needs to move quickly and is looking for their own house to purchase.
If you can’t afford to buy a house in cash, make sure to pay your mortgage directly from your bank account. Mortgage lenders typically charge a 3% servicing fee if you pay your mortgage with a credit card. That’s a $45 fee on a $1,500 payment.
Whether it’s better to buy a car with cash or financing often depends on the dealership. Some dealers say they make more money when you finance a car, so they’re unwilling to give a discount to cash buyers. Others are happy to knock off an extra $500 if you’re willing to sign a check or hand over hard cash that day.
Many dealerships now have 0% financing offers, which is tempting for consumers. However, these deals can mask the true amount you’re paying and lure customers into a car that’s more than they can really afford.
While financing a car is common, it might not be the best option if you’re looking for a special deal. Most people selling cars on Craigslist will only accept hard cash, and that’s where you can find the greatest value.
Utility companies often require you pay via a bank account or charge a service fee when you use a credit card. When you have to pay more money for the same service, it’s better to pay with cash.
You can usually set up autopay for your utility payments with a bank account the same as you would with a credit card, so you’re not paying a physical bill each month.
Buying real furniture, outside of what you’d find in Ikea, is expensive. That’s why many furniture stores offer their own financing. Some of their special offers include no financing if you pay the balance in full within six months.
However, if you fail to pay off the balance within that special window, the APR will jump from 0% to whatever was listed in your financing offer – sometimes up to 30%. You’ll also owe interest from the date that you took out the loan, which could equal hundreds of dollars.
Anytime you finance a discretionary purchase like furniture, you’re incentivized to spend more than you have. But if you come with a cash budget, you’ll be more careful about how much you spend.
Some gas stations still offer a cash discount, but you won’t know unless you ask. Usually it’s a discount of 5 cents per gallon, which can add up if you have a long commute or drive for work.
Mom-and-pop stores and restaurants might also be willing to provide a cash discount. Some places still require a $10 minimum if you’re going to pay with a credit card.
If you’re paying for medical expenses with a credit card, you’re already losing. That’s because the best way to save on healthcare is to open a Health Savings Account, where all your contributions are tax deductible. When you pay for your MRI with a credit card, you forego the tax benefits of using an HSA.
An HSA works like a bank account. You deposit money into it and you get a debit card you can use for transactions. There is a catch, however: you can only spend the money from an HSA account on qualified medical expenses, which don’t include insurance premiums, cosmetic treatments and over-the-counter drugs.
However, the list of what you can pay for with an HSA is almost longer. It includes acupuncture, therapy appointments, eyeglasses and a host of other expenses you might not expect.
If you’re running your own business, keeping track of tax-deductible expenses is vital when tax season hits. When you pay with cash or a debit card, it can be harder to track if those expenses were personal or business-related.
Many credit cards, especially those designed for business owners, will automatically categorize all your transactions. This can simplify tax time for entrepreneurs who don’t have a dedicated accountant.
Traveller’s checks used to be the preferred method of consumer protection while travelling, but these days that honor goes to credit cards. Not only do many cards now have travel insurance, but fraud protection and the chargeback option make it so that credit card users can spend abroad with no anxiety.
Another helpful travel tool that most credit cards offer is rental car insurance. Rather than paying for the pricey supplemental coverage they offer at the desk, you can rent worry-free and contact your issuer if something goes wrong.
Make sure to notify your issuer before you travel abroad. That same fraud protection could be used against you if they start seeing unexpected charges from overseas, leading them to cancel your card and leave you stranded.
If you pay for an appliance with cash, there’s always a chance you’ll end up regretting the decision. Something can always go wrong with refrigerators, washing machines and other large pieces of machinery, and you can never be 100% sure if you’ll be covered under the warranty.
With a credit card, you have the option to request a chargeback if you feel like you’ve been sold a faulty piece of equipment. Often, just the threat of a chargeback will cause customer service representatives to change their tune. If you pay in cash, that money is most likely gone.
On top of the fraud protection cards offer, they will also often extend whatever warranty comes with the appliance. For example, your issuer could extend a six month warranty to nine months, purely as an incentive to use their card.
One of the major drawbacks of online shopping is the disconnect between buyer and seller. Once you’ve made a purchase, you have to wait and trust that your item ships in tact and on time. If the product shows up broken or not at all, debit card users may have to just eat the cost. Thanks to most issuer’s zero liability policy, credit card users can order with confidence.
This is another situation where the chargeback is a powerful tool. Contractors don’t have the greatest reputation for delivering on their promises, so using a credit card gives you the option to challenge any expenses you see as blatantly fraudulent. It may not fix a faulty wiring job or lazy plumbing work, but at least it can retrieve the funds you need to get the job done right.
If you’re using a credit card that has a rewards program, you’ll often need to spend a certain amount within a certain timeframe to actually get the reward. This can make spending with your credit card the best option in general while you’re trying to hit these benchmarks.
Remember to only sign up for a rewards card if you’re certain you can meet the conditions of the bonus. Card issuers make their money on people who sign up on the promise of flight miles or cash bonuses, only to underspend and waste the opportunity.
Cold, hard cash may not be the dominant form of currency anymore, but that doesn’t mean it’s completely useless. There are plenty of situations that are best handled with good old fashion Benjamins. That may change in the future, but for now it looks like the dollar bill isn’t going anywhere soon.
Remember that your credit score is an important asset, and building it should be a top priority if your credit history is shoddy.