13 Times You Should Never Pay with Cash
They say cash is king, but there are plenty of reasons why credit can be better than greenbacks. These are the times you should always lay down a card.
Cash isn’t always king
Budget experts recommend paying with cash to avoid buying things you don’t need, some businesses request cash-only payments, and we’ve all heard the old adage, cash is king, but is cash the way to go? Not always. In our changing world, some of the age-old advice about finances has to change, too. While there are certainly still some benefits to paying with cash, the current coin shortage, and the number of businesses no longer accepting cash due to the COVID-19 pandemic have made it clear that pulling out the plastic has become the new way to go. When making these payments, be sure to avoid using cash.
“Don’t use cash or direct payments from your checking account for regular monthly bills like cable, telephone, or utilities. Use credit cards,” says David Walters, a certified financial planner with Palisades Hudson Financial Group. Unlike random, perhaps frivolous, charges to your credit card, these types of bills need to get paid every month. Most companies now accept payment via credit card without any additional charges, so by paying these with a credit card instead of cash, you can take advantage of the benefits of your credit card, such as earning miles or cashback on purchases. It’s a freebie for an expense that you’re going to pay anyway.
“The caveat here is that this only applies to people who pay their credit card bills in full each month. If you’re only making partial payments on the credit card each month, then the interest that accrues on the outstanding balance would negate any benefit to paying monthly utility bills with your credit card,” adds Walters. This is just one of those things you should always pay for with a credit card.
You should never pay with cash when you’re purchasing something for your business. “You need a paper trail to identify something as a business expense so you can deduct it on your tax return. If the IRS ever audits you, it’s also much easier to pull up a record if you pay with a credit card, check, or a wire from your business bank account,” says Priyanka Prakash, a content writer for Fundera, a platform for small business loans.
You may think a service provider did a good job, but time will tell. “When paying for auto repairs, home improvements, or other services where defects in the service provided may not become obvious for some time after the service is complete, paying by credit card offers another layer of protection,” says attorney Eric Ridley.
Pat yourself on the back if you saved up enough to pay cash for a car. But if you have good credit, you may be better off financing a car purchase at the low rates available today (between .99 and 3.99 percent for buyers with very good credit).
“If, for example, you are going to spend $20,000 for a car, you could instead put 20 percent down and take the $16,000 and invest it. While you will incur an interest cost on your declining balance, you can take advantage of compounding returns on an increasing investment balance,” says Richard Best, a writer for dontpayfull.com. Just don’t make that move with one of the 8 credit cards you should never open.
Buying a house
When you buy a house, more likely than not, you probably won’t have enough money to pay cash. Even if you do, it’s not a great idea: When you pay cash for a house, you miss out on getting a mortgage-specific tax break and that hefty chunk of change is money that could be better used for investing. “If you qualify for a good home loan, you should consider financing it that way instead of paying in cash,” says Alayna Pehrson, who manages a financial blog.
If you’re thinking about getting an extended warranty, this isn’t the time to pay for an electronic appliance with cash. “Several credit cards offer extended warranties for electronics as a cardmember perk. Use an eligible card to pay for an item and you might receive a free extended warranty that matches the manufacturer’s warranty up to one year,” says personal finance expert Janet Alvarez of Wise Bread.
Read the fine print though. “Watch out for exceptions as your credit card doesn’t always cover every purchase. Computers, cars, and items without a manufacturer’s warranty are generally excluded from additional coverage,” warns Natasha Rachel Smith, a personal finance expert at Top Cashback. You’d be surprised at the 13 things credit card companies know about you.
Credit card rewards
When you’re close to having enough points for a free trip, large cash back, or other great perks, do what you gotta do. Charge to reap the reward. “Why pay cash? It does not benefit you in this instance. Instead, whip out that credit card and slide it through,” says Chantay Bridges, a realtor, and financial coach.
When you’re trying to improve your credit score
If you need your credit score to shine just like you do, paying something off through credit will help. That’s just one of many ways to boost that all-important score. Says Bridges, “No credit is just as yucky as bad credit. Why? A higher credit score will reduce the amount you have to pay overall in the long run. What to do instead? Keep using those credit cards, pay them off early and on time.” Here are some more ways to improve your credit score.
You heard a company’s ad on the radio or watched their infomercial in the middle of the night. You have no clue if they are legit. If you insist on taking a chance and purchasing something from them, at least pay with a credit card, so if your suspicions turn out to be warranted and they’re bogus, you can call your credit card issuer and dispute the charge. “If you pay with cash, you probably won’t get your money back if there’s an issue and the company refuses to resolve it. With a credit card, it’s likely the credit card company will reimburse you for your loss and deal with the troublesome merchant directly,” says Eric Roberge, a certified financial planner and founder of Beyond Your Hammock, a financial planning firm. Just be careful you’re not falling for one of these common online scams you should be aware of.
If your cash is pick-pocketed, robbed, or goes missing, you have no recourse when traveling. It’s all gone as if you never had it. You may even have a challenging time proving the actual amount that you had on you. Carry minimal cash when traveling. Credit card companies often give you perks like lost luggage insurance and hotel discounts. Don’t miss how to use credit cards to upgrade your vacation.
Trying to score tickets for that sold-out gig? “Unless you can verify the authenticity of tickets from the reseller, never pay in cash. This will ensure you can dispute the charge should you find out that you were duped,” says Jennifer McDermott, a personal finance expert with Finder.com. And be sure you know the 10 times that using your debit card can put your money at risk.
A big part of money management is understanding your spending patterns, and it’s easier to track purchases when you use a credit or debit card and receive statements, either online or on paper. There’s no getting around doing a budget if you want to stay on top of your finances. “Using cards also makes it easier to use online tools like Mint.com, which can categorize your spending and help you create budgets. With cash, your receipt is the only record, and if you misplace the receipt, you can lose track of where you spent the money,” says Alvarez.
Renting a car
You don’t want to make costly mistakes when renting a car, like purchasing what you don’t need. “Often your credit card will provide insurance on car rentals, but only if you use that form of payment. Since this saves you from paying for extra insurance, you should always pay with a credit card when renting a car,” says Lindsay Sakraida, director of content marketing at DealNews. Just as it’s important to know when to pull out the plastic, keep in mind these times you should always pay with cash.
- David Walters, certified financial planner with Palisades Hudson Financial Group
- Priyanka Prakash, writer for Fundera
- Eric Ridley, Law Offices of Eric Ridley
- Richard Best, writer for dontpayfull.com
- Alayna Pehrson, manager of Credit Repair Blog
- Janet Alvarez, personal finance expert at Wise Bread
- Natasha Rachel Smith, personal finance expert at TopCashback.com
- Chantay Bridges, realtor and financial coach at Los Angeles Real Estate Now
- Eric Roberge, certified financial planner and founder of Beyond Your Hammock
- Jennifer McDermott, personal finance expert with Finder.com
- Lindsay Sakraida, director of content marketing at DealNews