Cash vs. Credit Card: Knowing When to Use Each

Cash vs. Credit Card: Knowing When to Use Each
Point Editorial

It’s a question as old as the economy itself — cash or credit? 

But picking the ideal payment method is trickier than you might think. 

Understanding spending behavior 

Do you tend to make impulsive purchases with your credit card that you struggle to pay off at the end of the month? Or do you have a hard time keeping track of your cash expenses?

Knowing how to manage your daily spending habits is essential for a healthy financial strategy.

If you’re honest with yourself about how you spend and take the necessary steps to keep expenses under control, you should have no trouble reaching your financial goals.

The first step is understanding the key differences between cash and credit.

Understanding how to use cash

Paying with cash is fast, simple, and the best way to ensure you don’t spend more than you have. 

And while sometimes it might seem like a credit card is more convenient, the truth is you can make many of the same transactions with a prepaid debit card.

4 situations when using cash is perfect 

  1. In case of emergency.

You should always keep some cash in your wallet to cover surprise daily expenses and avoid paying out-of-network ATM charges. 

A cash emergency fund can also save you a trip to the bank when unexpected costs arise at the wrong time. Some experts suggest you keep $200 in your car’s glove compartment should you lose or forget your wallet, and $1,000 or more in an envelope at home. 

  1. To limit your spending.

It turns out we overspend more with credit and debit cards than we do with cash.

Studies have shown that we spend less money when we use cash because its physical presence helps us be more aware of our assets. When you hand a $20 bill to someone, there’s no denying the cost.

Again, many experts suggest using envelopes with cash in them instead of credit or debit cards to keep better track of your spending.

  1. To make healthier, more conscious purchases.

A study published in the Journal of Consumer Research suggests that we feel a more profound sense of connection and pride in our purchases when we use cash, which leads to an increased consciousness about the types of products and businesses we choose to support.

This logic also extends to the quality of the food products we buy. The same study suggests that shoppers who use credit cards are more likely to buy junk food than those using cash. 

  1. To make purchases from small businesses

Credit card companies charge business owners an average of 2% in interchange fees to process transactions, so using cash for purchases in small stores and restaurants is a great way to help support local businesses and help them dodge fees. 

Benefits of paying with cash 


You can use cash anywhere. The possibilities are almost limitless when you add debit cards, checking accounts, and online transfers (all of which draw directly on your cash deposits). 


Many retailers and service providers charge a convenience fee for using a credit or debit card, and you can often avoid this fee when using cash, check, or an online transfer. Some merchants — like gas stations — also offer rebates on cash payments. 

Debt reduction

If you already have significant credit card debt, switching to cash can help avoid additional interest charges while also allowing you to pay off your balance.

Understanding how to use credit

Don’t cancel your credit card just yet. 

Although cash is perfect in most circumstances, sometimes using a credit card can work to your advantage.

3 situations when using credit is perfect

  1. When you’re traveling.

A credit card is ideal for all your travel needs, from booking the trip to paying for your hotel and car rental. 

You’ll get better rates for foreign exchange fees than buying currency with American dollars, and you won’t be liable for fraudulent charges. You can also cancel or freeze your card if you lose it. And to top it off, many credit cards also offer travel insurance. 

  1. When you spend for work.

If you make regular work expenses, using a credit card is your best option because you can submit your expense report and get reimbursed before your bill is due. That way, you’re not spending money from your bank account to pay for business expenses that your employer will eventually refund.

  1. When you want rewards.

If you’re disciplined enough to always pay your full credit card balance, you can benefit from your credit card rewards, cash-back, or miles programs without ever paying interest. That means more money for your everyday purchases.

Benefits of paying with credit

Fraud protection

The best credit cards offer comprehensive protection against fraud and identity theft. If an unauthorized charge is made with your card, you can report it to your card provider, and they will usually reverse the charges. Many companies even flag potentially fraudulent purchases themselves before charging you.

Purchase protection & insurance

Almost all card issuers cover damage or theft of items purchased on your credit card. Some cards also offer extended warranties and price protection if the cost of an item drops after you’ve purchased it.

Many companies also offer travel and rental car insurance when you use your card on those types of expenses.

Grace period

The secret to getting the most out of your credit card is the grace period between your purchases and your bill’s due date. You effectively defer your payments up to 30 days without paying interest by paying your balance in full every month.

Build credit

Using a credit card is one of the easiest ways to build credit, provided you’re responsible and don’t make late payments. Even if you only use your card a handful of times every month, paying your balance in full will boost your credit score.

The bottom line

Cash and credit each have their strengths and weaknesses. And while you might have a preference, chances are you’ll end up using both forms of payment at one point or another. That’s why it’s vital to know the benefits of each so that you can use them to your advantage.

Looking for a third alternative to cash and credit cards? Try PointCard™.

A transparent, easy-to-use alternative payment card, PointCard allows you to spend your own money while also receiving exclusive benefits, including unlimited cash-back on all purchases and bonus cash-back on subscriptions, food delivery, rideshare services, and coffee shop purchases. 

You also get fraud protection with zero liability, no interest rates, and rental car and phone insurance.

Join Point now.

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Point Editorial
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