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Cash vs. Credit Card: Which Is the Better Way to Pay?

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Brittney Myers
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Brittney started her writing career in the world of science, putting her physics degree to good use. Her journey into finance started with building her personal credit, but soon grew into a borderline obsession with credit cards and travel rewards. For the last 7 years, she has enjoyed the ability to share her expertise with readers, as well as the opportunity to interview companies and individuals making an impact on our financial lives. She wholly believe most problems can be solved with the right research -- and a good spreadsheet -- and she specializes in translating complex financial topics into actionable advice to help educate and empower readers.

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Cole Tretheway
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Cole Tretheway is a full-time personal finance writer whose articles have been featured on Motley Fool Money and The Motley Fool. He has a degree in English with a Certificate in Professional and Technical Communication from California Polytechnic University, SLO.

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Did you know that U.S. colleges can charge you thousands of dollars for paying tuition with credit cards? It's true. It's also true that cash offers you 0% rewards at checkout. Some prefer one over the other. But who is in the right, cash or credit card users?

Cash and credit cards offer different advantages to users. Neither is better than the other 100% of the time, so knowing when to use cash vs. credit is key to spending less and earning more.

Generally speaking, cash is widely accepted and carries zero debt risk. However, credit cards are more secure and convenient. Below, we'll weigh the pros and cons of cash vs. credit cards.

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Cash vs. credit card: Where each has the advantage

Category Advantage goes to Reason
Budgeting Cash You can't spend more than you have
Universality Cash Accepted by most merchants in the U.S.
Security Credit cards Fraud protection and easier to track
Convenience Credit cards No need to carry or withdraw bills
Rewards Credit cards Rewards for swiping and building credit score
Fees Depends Credit cards and ATMs may both charge fees

Cash: pros

Cash has some advantages over credit cards. Here are three:

  • Easy budgeting
  • Universally accepted
  • Deals at small businesses and gas stations

Cash is easy to budget. You can't spend more than you have. Want to limit your spending to $30 at the grocery store? Stick $30 into your wallet and leave the rest at home. A plethora of low-tech budgeting techniques rely on cash, like the envelope method. According to the financial gurus who plug them, they're effective at getting you to save more money.

Cash is widely accepted in the United States. This is important because some small businesses only accept cash. It's also an easy way to tip at restaurants, so there's the convenience factor. If you're traveling somewhere new, it might be handy to carry around $50 in case a cool shop refuses your Discover card or Apple Pay.

Cash gets you deals at some small businesses and gas stations. Some businesses offer you discounts for using cash because you're saving them money -- they don't need to pay credit card processing fees to card networks like Mastercard or Visa.

Cash: cons

Cash falls short of credit cards in some ways. Here are three:

  • Hard to track
  • Limited withdrawal options
  • Expensive ATM withdrawal fees

Cash is hard to track. Ever stuck a $20 bill in your pants pocket, only for it to mysteriously disappear 30 minutes later? It happens. Cash can be stolen and misplaced. It's an unfortunate reality that overshadows the occasional discovery of a crumpled $5 bill in the laundry machine. And if you lose cash, the U.S. government probably isn't going to help you recover it.

Cash has limited withdrawal options. Need to stock up? Unless you've got all your money stored in a safe back home, you're going to need to withdraw cash from a bank account. To do so, you'll need either an ATM or a bank branch in your area. Otherwise, you're out of luck.

Cash can be expensive to withdraw from ATMs. If you withdraw from out-of-network ATMs, you may be charged a withdrawal fee. When you withdraw small amounts frequently, these fees add up. Fees typically range from $2.50 to $5, according to Value Penguin.

Credit card: pros

Credit cards have some advantages over cash. Here are three:

  • Convenient
  • Highly secure
  • Rewarding when used properly

Credit cards are convenient. Many places accept them. You can use credit cards, especially Visa and Mastercard, abroad at many places that don't accept U.S. dollars. Some businesses, including hotel and rental car agencies, only accept credit cards. If you're in a pinch, you can use a credit card to pay for something you couldn't otherwise afford to pay for in cash. These all make credit cards extremely convenient to use.

Credit cards are highly secure. If someone steals your card and swipes it, you can report it so that you pay no more than $50. In many cases, card issuers will refund 100% of fraudulent payments. Furthermore, card issuers often secure your credit cards even more by freezing disputed payments, sending you fraud alert notifications, and so on.

Credit cards reward you for swiping responsibly. Some cards literally pay you cash back rewards for swiping at checkout. Others earn you travel points you can put toward booking flights and hotel stays. Most importantly, using a credit card the right way builds your credit score. An excellent credit score can save you tens of thousands of dollars on loans for car payments and mortgages.

Credit card comparison

We recommend comparing options to ensure the card you're selecting is the best fit for you. To make your search easier, here's a short list of standout credit cards.

Offer Our Rating Welcome Offer Rewards Program APR Learn More
Rating image, 5.00 out of 5 stars.
5.00/5 Circle with letter I in it. Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
 = Best
= Excellent
= Good
= Fair
= Poor
Best for cash back on rotating categories 		Discover will match all the cash back you’ve earned at the end of your first year. 1% - 5% Cashback Circle with letter I in it. Earn 5% cash back on everyday purchases at different places you shop each quarter like grocery stores, restaurants, gas stations, and more, up to the quarterly maximum when you activate. Plus, earn unlimited 1% cash back on all other purchases.

Intro:

Purchases: 0%, 15 months

Balance Transfers: 0%, 15 months

Regular: 18.49% - 27.49% Variable APR *Rates as of December 12, 2024.

Apply Now for Discover it® Cash Back

On Discover's Secure Website.

Rates & Fees External Link Icon

Rating image, 5.00 out of 5 stars.
5.00/5 Circle with letter I in it. Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
 = Best
= Excellent
= Good
= Fair
= Poor
Best for cash rewards on everyday spending 		$200 cash rewards Circle with letter I in it. Earn a $200 cash rewards bonus after spending $500 in purchases in the first 3 months. 2% cash rewards Circle with letter I in it. Earn unlimited 2% cash rewards on purchases.

Intro: Circle with letter I in it. 0% intro APR for 12 months from account opening on purchases and qualifying balance transfers

Purchases: 0% intro APR, 12 months from account opening

Balance Transfers: 0% intro APR, 12 months from account opening on qualifying balance transfers

Regular: 19.24%, 24.24%, or 29.24% Variable APR

Apply Now for Wells Fargo Active Cash® Card

On Wells Fargo's Secure Website.

Rates & Fees External Link Icon

Rating image, 4.00 out of 5 stars.
4.00/5 Circle with letter I in it. Our ratings are based on a 5 star scale. 5 stars equals Best. 4 stars equals Excellent. 3 stars equals Good. 2 stars equals Fair. 1 star equals Poor. We want your money to work harder for you. Which is why our ratings are biased toward offers that deliver versatility while cutting out-of-pocket costs.
 = Best
= Excellent
= Good
= Fair
= Poor
Best for unlimited rewards on purchases 		25,000 points Circle with letter I in it. 25,000 online bonus points after you make at least $1,000 in purchases in the first 90 days of account opening - that can be a $250 statement credit toward travel purchases 1.5 points per dollar Circle with letter I in it. Earn unlimited 1.5 points per $1 spent on all purchases, with no annual fee and no foreign transaction fees, and your points don't expire as long as your account remains open.

Intro: Circle with letter I in it. 0% Intro APR for 15 billing cycles for purchases. 0% Intro APR for 15 billing cycles for any balance transfers made in the first 60 days. After the intro APR offer ends, 18.49% - 28.49% Variable APR on purchases and balance transfers will apply. A 3% fee for 60 days from account opening, then 4% fee applies to all balance transfers.

Purchases: 0% Intro APR for 15 billing cycles for purchases

Balance Transfers: 0% Intro APR for 15 billing cycles for any balance transfers made in the first 60 days

Regular: 18.49% - 28.49% (Variable)

Apply Now for Bank of America® Travel Rewards credit card

On Bank of America's Secure Website.

Credit card: cons

Credit cards fall short of cash in some ways. Here are three:

  • Debt risk
  • Annual fees
  • Transaction fees

Credit cards carry debt risk. Credit card issuers charge you interest for carrying a credit balance. According to Forbes, the average credit card interest rate is currently 28.17%. Some credit card issuers charge late fees, too. If you frequently fail to pay off your credit card bill 100% each month, you risk falling deep into debt. This hurts your wallet and your credit score.

Credit cards sometimes charge annual fees. Thankfully, there are many no annual fee credit cards that you can use for free. However, you must continue to pay monthly bills 100% in full and on time, otherwise you risk carrying credit card debt.

Credit cards sometimes trigger transaction fees. Some institutions charge 2% processing fees for paying with credit cards. That makes it more expensive to use a credit card to pay rent, taxes, school tuition, insurance, and utilities. It might be cheaper to pay these with cash or debit.

A place for both

Consider carrying both cash and a credit card to get the best of both worlds. You can use your credit card to build your credit score and earn rewards. You can keep a limited amount of cash in your wallet to pay at cash-only stores and get discounts at gas stations.

Much of the cash vs. credit card debate hinges upon location. Do stores near you only accept cash? If so, it could be worth carrying around hundreds of dollars. But if most locals accept credit cards, you can take greater advantage of the convenience and fraud protection credit cards offer.

Another important factor: spending limits. If you want to limit spending, cash is the way to go. It's easier to get into the "save more, spend less" mindset when you can literally feel the dollar bills slipping through your fingers. Plus, it's easy to limit spending by carrying less cash around.

There's a third alternative: Debit cards offer the convenience of credit cards and carry zero debt risk. You can use them instead of cash or a credit card to pay for rent and groceries. Debit cards have their pros and cons, but they're worth adding to your ways to pay.

FAQs

  • When you pay with cash, you pay with money you own. In the U.S., that typically means paying with dollar bills. When you pay with a credit card, you're paying with money you borrow from a card issuer. You are responsible for repaying that money in a timely manner.

  • People of all ages use cash for many reasons. In fact, younger generations like Gen Z use cash frequently. Nearly 25% of Gen Zers pay mostly with cash, according to a recent Credit Karma report. Reasons include feeling more in control over spending.