Cash vs. Credit: How Do YOU Pay?

Buy what you can afford or charge it? Welcome to WatchMojo.com, and in this installment of Versus, we’re pitting Cash against Credit to see which of these forms of payment is superior. We’re ranking the pros and cons of paying with physical currency versus the pleasure of plastic, in order to see which method truly offers the most bang for your proverbial buck!

Just about everyone accepts cash as a form of payment “for all debts, public and private,” no matter where your journey leads you. Let’s say you’re vacationing somewhere the dollar isn’t accepted. Sure, it’s easier to pay with credit. But those transaction fees add up! Plus, if you forget to call your credit card company before your trip, they could flag your overseas spending as fraudulent and lock your account! Of course, mom-and-pop restaurants or local tour guides may not even accept cards. So it’s always prudent to keep cash on hand – you can get those dollars exchanged in a jiffy! What’s more, it’s mighty satisfying to pull out a wad of cash and plunk down the exact number of dollars and cents you need to settle your tab. Because sometimes, you need exact change. Or you need to break a twenty for a pack of gum. Having cash on hand is handy when paying for small purchases. This is when portability and convenience become very important. Sure, a card takes up very little of your wallet’s real estate as compared to all those coins and bills, and swiping is super convenient. But – depending on the size of the purchase – it can slow down the transaction, which isn’t so pleasant for customers behind you in line. Another strike against credit is the fact that some merchants are particular about which cards they accept; of the four main cards, Visa and MasterCard are relatively universal, whereas American Express and Discover are not due to their generally higher processing fees. That means potentially needing to have a variety of different cards on deck. To make matters worse, some merchants go the cash only route to avoid paying fees to the card companies at all. Well, that seals it: the fact that you can pay for pretty much anything with physical currency means that – in terms of acceptability – cash is king.

Round 2: Safety

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Let’s face it: having large amounts of cash on you at all times isn’t exactly the wisest behavior. Firstly, ostentatious shows of wealth attract bad guys. Secondly, if that money is stolen or lost, that’s it – it’s gone; there’s little to no chance of recovering those funds, unless some pretty quick and effective police work rounds it up on the double. On the other hand, many credit cards arrive armed with various forms of purchase protection written into their policies – or at the very least, they have such programs available to their customers. That way, the victim is not on the hook for unauthorized purchases or charges associated with that card. Which brings us to the issues of cybercrime, stolen credit cards and identity theft. We did mention that protection against these kinds of dangers is available, but even so it can take a while to recover from an identity theft – for example. In some cases, it can take months and many, many phone calls to get your credit score back to normal. But there is a light at the end of the tunnel: many credit card companies these days are very accommodating in taking care of their customers. There’s no denying that the most effective way to avoid identity theft when making a purchase is to use cold hard cash, but this method has fallen out of favor with the kids these days – whether they’re making online purchases or shopping at the mall. Plastic is sleek and designed to be portable, and it’s not uncommon for young consumers to carry cards as their primary form of payment, using an ATM only when they need to bring cash. Essentially, carrying cash equals more bulk and more stress than many people want to deal with, so this round goes to the Credit Cards.

So, we’ve established that using cash is the only way to truly remain safe from the threat of identity theft. It’s also the only way to avoid leaving a paper trail; it takes time and effort to follow the footprints of someone who only pays in cash – and probably more skill than the average person has. If this all sounds a bit, well, sketchy, that’s cause it is: cash is the preferred means of payment for those engaging is “less than legal” activities, like money laundering, bribery or extortion. Of course, it isn’t only criminals who enjoy the freedom of physical currency: some consumers just like their privacy from big brother or enjoy paying for goods and services without having to share information or sign up for a credit or retail store card. They might just want to shop, travel or otherwise get on with their day without having to worry about bringing the wrong card to the grocery store or shopping mall. Credit cards, on the other hand, are just that: credit with a store or company. By signing up for a credit card, you’ve made a promise that you’ll pay for whatever you purchase at a later date. This helps you build credit and allows lenders to see that you’re a reliable spender, while also potentially earning you bonus points and rewards. However, like we said, it’s hard to stay anonymous once you fall down the credit card rabbit hole, as you’ve already shared the information companies require to keep you in their databases. If this round is all about keeping your anonymity, then it’s a no-brainer. This raises Cash’s value 2-to-1 against Credit Cards.

While there may be many benefits to using cash, let’s discuss the potential rewards. To be honest, using cash has no additional benefits. Sure, paying immediately for an expensive dinner or a pair of concert tickets prevents you from potentially having to pay interest down the road. And, in some cases, you might be able to talk to merchant into giving you a discount if you’re paying for a large purchase in cash – but that’s about it. Comparatively, credit cards offer many incentives. We’ve already mentioned that, sometimes, when you sign up for a store card or a credit card, you may be eligible for built-in benefits. Some cards offer special points for every dollar spent, which can earn you cash back on purchases or can help you rack up frequent flier miles for that dream vacation, for example. The downside to this, of course, is interest. But if you’re able to keep track of your spending and always pay on time, then using a credit card may be an easy way to book a free flight or hotel room – something cash can’t do. When it comes to free swag, sweet plane trips or frankly any kind of incentive, Cash just can’t compete. We have to give this fourth round to Credit Cards.

Before we start awarding points to Cash or Credit, we have one big question: what IS a credit score? Basically, it’s a number that represents how trustworthy you are in terms of paying off your debt. It’s determined by many factors, like how many credit cards are in your name, if you carry a balance on those cards and by how much you pay down your debt every month. Lenders – like banks, mortgage brokers, credit card companies, etc. – use that number to decide if you qualify for a loan or a new credit card, for example. Let’s face facts: many credit card companies hope you’ll be tempted to buy something you can’t afford and carry a balance on your card – that way, they can cash in on the accrued interest or late fees that result from poor spending habits. At this point, you might be thinking: “hmmm, that doesn’t seem worth it.” You may also be thinking that a cash-only diet is clearly the safe route to keep your credit rating intact. Unfortunately, it’s not. Spending only cash could certainly improve your credit in the short term – especially if you’re using it to pay down your debt. In fact, according to some experts, you can go from spending more than you make to actually building a savings just by switching to cash, as it helps reign in spending. However, because your score partly depends on your account balances versus your credit limits, if you never charge ANYTHING, you aren’t showing lenders whether you’re trustworthy or not. In that case, your credit score could go down or simply disappear altogether. Banks may even close your credit cards if you have zero balance and never charge anything. And that would make things difficult for those big, important purchases down the road. Because it’s a lot more complicated to build credit using only cash, we have to give credit where credit is due, and award this round to, well, Credit.

Ultimately, credit cards are necessary evil: they’re an important building block to help you establish credit, meaning that in the future, you’ll be able to secure a mortgage to buy a house or get a car loan to buy a new ride. Cash may be king, but by a score of 3 to 2, credit is the winner of this Versus battle. Do you agree with our choice? Did we pick your preferred method of payment? Defend cash or credit in the comments, and be sure to subscribe to WatchMojo.com for more thought-provoking versus battles!