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.
Jump To
- Cash vs. credit card: Where each has the advantage
- Cash: pros
- Cash: cons
- Credit card: pros
- Credit card: cons
- A place for both
- Still have questions?
- FAQs
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 |
|---|---|---|---|---|---|
Chase Freedom Unlimited® Apply Now for Chase Freedom Unlimited® OnChase'sSecure Website. | Rating image, 5.00 out of 5 stars. 5.00/5Our 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. | Up to $300 cash backEarn an extra 1.5% on everything you buy (on up to $20,000 spent in the first year) — worth up to $300 cash back. That's 6.5% on travel purchased through Chase Travel, 4.5% on dining and drugstores, and 3% on all other purchases. | 1.5% - 5% cash backEnjoy 5% cash back on travel purchased through Chase Travel, our premier rewards program that lets you redeem rewards for cash back, travel, gift cards and more; 3% cash back on drugstore purchases and dining at restaurants, including takeout and eligible delivery service, and 1.5% on all other purchases | Intro:0% Intro APR on Purchases and Balance Transfers for 15 months Purchases: 0% Intro APR on Purchases, 15 months Balance Transfers: 0% Intro APR on Balance Transfers, 15 months Regular:20.49% - 29.24% Variable | Apply Now for Chase Freedom Unlimited® OnChase'sSecure Website. |
Discover it® Cash Back | Rating image, 5.00 out of 5 stars. 5.00/5Our 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. | Discover will match all the cash back you've earned at the end of your first year.N/A | 1% - 5% CashbackEarn 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—automatically. | Intro: Purchases: 0%, 15 months Balance Transfers: 0%, 15 months Regular:18.24% - 28.24% Variable APR | |
Capital One Venture Rewards Credit Card | Rating image, 5.00 out of 5 stars. 5.00/5Our 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. | 75,000 Miles75,000 Miles once you spend $4,000 on purchases within 3 months from account opening | 2X-5X milesEarn unlimited 2X miles on every purchase, every day. Earn 5X miles on hotels and rental cars booked through Capital One Travel, where you'll get Capital One's best prices on thousands of trip options. | Intro: Purchases: N/A Balance Transfers: N/A Regular:19.99% - 29.99% (Variable) |
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.
Still have questions?
Here are some other questions we've answered:
- Credit Card vs. Debit Card: Which Should You Use?
- How Does a Credit Card Cash Advance Work?
- How to Apply for a Credit Card (and Get Approved)
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.
Our Credit Cards Experts
By:Brittney Myers
Writer
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.
By:Cole Tretheway
Cole Tretheway is a full-time personal finance writer whose articles have been featured on The Ascent and The Motley Fool. He has a degree in English with a Certificate in Professional and Technical Communication from California Polytechnic University, SLO.
Fact CheckedAshley Maready
Writer and Editor
Ashley Maready is a former history museum professional who made the leap to digital content writing and editing in 2021. She has a BA in History and Philosophy from Hood College and an MA in Applied History from Shippensburg University. Ashley loves creating content for the public and learning new things so she can teach others, whether it's information about salt mining, canal mules, or personal finance.
