Credit Card or Cash: Which Is Better to Use?

Jason SteeleUpdated January 7, 2025

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Editor’s note: Lantern by SoFi seeks to provide content that is objective, independent and accurate. Writers are separate from our business operation and do not receive direct compensation from advertisers or partners. Read more about our Editorial Guidelines and How We Make Money.

Choosing between credit cards and cash depends on your spending habits, financial goals, and the situation. Credit cards offer convenience, rewards, and fraud protection but can lead to debt if not managed responsibly. Cash helps control spending but lacks perks and security features. Keep reading to learn the pros and cons of both payment methods, helping you decide which option is best for daily transactions, budgeting, and building financial health.

When to Consider Using Cash

Using cash has a number of advantages, including:

Avoiding Fees

Some retailers charge convenience or transaction fees when you pay with a credit card. Plus, when you use a credit card, you’ll be charged interest on any unpaid balance. With cash, you won’t.You might also save money by using cash. For instance, some merchants may offer a lower price if you pay with cash. This is typically true for gas stations, which tend to charge less when you use cash. Over time, these savings can add up.

Keeps Credit Use Low

One of the biggest factors in your credit score is the amount of debt you have, which is measured by your credit utilization ratio. Experts advise keeping your credit utilization ratio under 30%. By making payments with cash, you won’t increase your debt.

More Convenient

Cash can be more convenient than credit cards. Smaller vendors sometimes prefer it, and you can use it to pay tips. Plus, some merchants don’t take credit cards at all. It’s worth noting that there is a type of payment card that functions like cash, called a cash card. A cash card has a stored value rather than drawing on a line of credit. Gift cards are a type of cash card and can typically be used like cash.

When You Have Trouble Staying on Budget

When you use a credit card, it can be easy to lose track of how much you’re spending. Paying with cash may help you keep on budget. Recommended: Budgeting Tips for Beginners

Pros and Cons of Using Cash

Pros of Using Cash	Cons of Using Cash
Simple and convenient to use	Less secure than other forms of payment
Accepted almost anywhere	Can be difficult or impossible to recover if lost
Makes it easier to stick to a budget	No ability to earn rewards
No convenience or transaction fees	No opportunity for purchase protection
Lower prices may be available from some vendors for cash purchases	Typically must be exchanged for local currency when traveling abroad

When to Consider Using a Credit Card

Why do people use credit instead of cash? Credit cards have steadily gained in popularity and offer a number of perks.

When You Want Rewards

Some credit cards offer rewards on purchases that might come in the form of travel points, miles, or cash back. These rewards cards may offer a sign-up bonus, as well. It’s important to consider extras like this when you’re choosing a credit card.

For Added Protection

Credit cards may give you travel insurance and purchase protection benefits. For instance, you may get extended warranty coverage, damage and theft protection, and price protection on items you buy with your card. This is good information to know and look for when you’re applying for a credit card.For traveling, some of the best credit cards offer trip delay and trip cancellation coverage, lost and delayed luggage benefits, and rental car insurance. Using a credit card to book your travel allows you to be covered by these benefits. Credit cards co-branded with airlines and hotels might also offer perks like priority service and upgrades.

When You Want Security

Credit cards are covered by the Fair Credit Billing Act of 1974, which protects you against fraud and unauthorized purchases. These are some of the credit card terminologies you should know. While the law has a $50 liability limit for cardholders, many credit card companies offer a zero-liability guarantee so you are not financially responsible.

If You Need to Finance Purchases

If you don’t have the cash on hand to buy something, a credit card lets you finance it and pay it off later. This is how credit cards work. And as long as you pay your entire statement balance by the due date, you won’t owe any interest. Unlike credit cards, debit cards don’t let you finance purchases this way. That’s one difference between a debit card and credit card.

Pros and Cons of Using Credit Cards

Pros of Using Credit Cards	Cons of Using Credit Cards
Earn rewards for spending	Can lead to debt
Enjoy travel benefits	May have annual fees
Offers protection and security	May hurt your credit if not used responsibly
Allows you to finance purchases	Interest charges typically apply if the balance isn’t paid by the due date

The Takeaway

When it comes to using cash vs credit card, there’s no one simple choice that’s best for everyone. In fact, you may find that it’s best to use cash for some purchases and credit cards for others. Learning more about the pros and cons of each form of payment could help you choose the right one for your different transactions.If you’re planning to use a credit card, it’s important to choose one that best suits your needs. Lantern by SoFi can help. In our online marketplace, you can easily explore different cards and compare offers all in one place to find the right option for you.Compare credit cards with Lantern.

Frequently Asked Questions

Is it possible to live on cash only?

What are the downsides of using cash only?

Which is safer: cash or credit card?

Which is better when traveling: cash or credit?

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About the Author

Jason Steele

Jason Steele has been writing about credit cards and award travel since 2008. One of the nation's leading experts in this field, he has contributed to dozens of personal finance and travel outlets and has been widely quoted in the mainstream media.

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