Cash or Credit? The Risks and Benefits of a Cash-Only Lifestyle
Sign up for our FREE Monthly Email Newsletter
In addition to keeping in the financial know, you may be interested in checking your credit score and report.
¹The credit scores provided under the offers described here use the Equifax Credit Score, which is a proprietary credit model developed by Equifax. The Equifax Credit Score and 3-Bureau scores are each based on the Equifax Credit Score model, but calculated using the information in your Equifax, Experian and TransUnion credit files. The Equifax Credit Score is intended for your own educational use. It is also commercially available to third parties along with numerous other credit scores and models in the marketplace. Please keep in mind third parties are likely to use a different score when evaluating your creditworthiness. Also, third parties will take into consideration items other than your credit score or information found in your credit file, such as your income.
²The Automatic Fraud Alert feature is made available to consumers by Equifax Information Services LLC and fulfilled on its behalf by Equifax Consumer Services LLC.
³Equifax Credit Report Control™ is only available while you have a current subscription to Equifax Complete Premier. Locking your credit file with Equifax Credit Report Control will prevent access to your Equifax credit file by certain third parties, such as credit grantors or other companies and agencies. Credit Report Control will not prevent access to your credit file at any other credit reporting agency, and will not prevent access to your Equifax credit file by companies like Equifax Personal Solutions which provide you with access to your credit report or credit score or monitor your credit file; Federal, state and local government agencies; companies reviewing your application for employment; companies that have a current account or relationship with you, and collection agencies acting on behalf of those whom you owe; for fraud detection and prevention purposes; and companies that wish to make pre-approved offers of credit or insurance to you. To opt out of such pre-approved offers, visit www.optoutprescreen.com/.
4We will require you to provide your payment information when you sign up and we will immediately charge your card $4.95. After that, we will charge the card $19.95 for each month you continue your subscription. You may cancel at any time; however, we do not provide partial month refunds.
Equifax® is a registered trademark and Equifax Complete™ Premier is a trademark of Equifax, Inc. © 2014, Equifax Inc., Atlanta, Georgia. All rights reserved.
In the wake of the big Target and Neiman Marcus data breaches, you may be wondering if cash payment is the way to go. After all, if you pay with cash, there’s no debit or credit card information for hackers to steal.
In addition to protecting you from this type of information theft, paying with cash can also be good for your financial health because it encourages you to spend less. According to a study conducted by Drazen Prelec and Duncan Simester, business professors at MIT, customers are willing to pay more for items when they are using credit cards instead of cash.
Unfortunately, paying with cash isn’t the perfect solution to your identity theft and money management concerns. It has its downside, too.
Credit tips: Paying with cash vs. credit card
You can lose your cash. You can also lose your credit card, of course, but you can always order a new one—which shouldn’t cost you anything.
Your cash can get stolen. While your credit cards can also be stolen, you can cancel them and order replacements. Federal regulations provide protection against fraudulent charges, so if a thief is able to use your card, you may not be responsible for the charges.
You could face withdrawal fees. If you fail to take cash out at one of your bank’s ATMs and decide to use an unaffiliated machine, you could face fees. To give you some perspective, paying $2.50 to withdraw $20 is the equivalent of paying 12.5 percent interest.
You aren’t using your credit. While this may sound like a pro, the problem is that your credit score could suffer if you aren’t building any credit in your name. Building a positive credit history requires some credit usage, and without a credit history, you may find it hard to get loans, such as those for cars or homes.
(Click here for Equifax® Credit Score products)
Your credit or debit card data can’t be hacked because you’re not using it. If you use cash at checkout, there’s nothing for hackers to steal.
You may be more mindful of your spending. Breaking a large bill hurts more than swiping a card. If you have a spending problem, consider trading your card for cold hard cash.
You can’t spend what you don’t have. Unlike a credit card, which allows you to spend more than what you actually have in the bank, once your cash is gone you aren’t able to spend any more.
I know some readers will talk about mileage, points, and so on, and how it might be easier to track your spending when you use a credit card. At the end of the day, you have to decide which payment method is best for you. Let us know what you think about purchasing items with either cash or credit.
Steve Repak, CFP®, is the author of Dollars & Uncommon Sense: Basic Training for Your Money.
Equifax maintains this interactive forum for education and information purposes in order to allow individuals to share their relevant knowledge and opinions with other members and visitors. We encourage you to participate in discussions about personal finance issues and other topics of interest to this community, but please read our commenting guidelines first. Equifax reserves the right to monitor postings to the forum and comments will be published at our discretion. Do you have questions or comments about your Equifax credit report or customer-service issues regarding an Equifax product? If so, please contact Equifax directly. All opinions and information expressed or shared in blog comments are solely those of the person submitting the comments, and don't necessarily represent the views of Equifax or its management.