Ten Reasons Why Cash can be Better Than Credit

Every day, Canadians make decisions about whether to spend money—and how to pay for those purchases. Once we decide to go forward with the transaction, the next decision is how to pay; cash or credit? This is not a hard decision, or maybe no decision at all, for most people but maybe it should be.

We have been conditioned to use credit cards or debit cards to make all of our purchases. Let’s take a look at maybe why you should use cash and not credit cards for payment.

1. Curb Impulse Spending and Spend Less

When we meet with people for financial counselling sessions we sometimes hear about struggles with impulse spending. Impulse spending can wreck budgets and set off a cascade of monthly deficits if you are not careful.

One of the strategies to fight back against impulse spending decisions is to only make cash purchases. It is much easier to make a transaction using a plastic card where you don’t see the amount that is leaving you. Whereas when you have to start putting down multiple $20 dollar bills it is more difficult to do and may slow you down or even make you reconsider making the purchase.

Pro tip : cash spending may also slow down your spending overall. If you struggle with impulse spending, play a game to see how long you can keep a $20 bill  in your wallet.

2. Be Ready for an Emergency

Emergency preparedness is a good topic. One of the ways that you can be prepared for a major power outage is to have some cash on hand. If a situation arose that you could not use your online banking, or a credit card, how would you buy things?

You never know the nature of an emergency or how it might play out so it can only help to have some cash to function with. This can be especially true when traveling; we would recommend to travel with some cash on hand.

3. Help Your Local Small Business and Economy

Many people have never been involved with running a business and are therefore unaware of the challenges that small business owners face everyday. One of those challenges is that whenever a customer pays via credit card, the business must pay a fee to a financial institution to handle the transaction. That fee can be between 2% and 3% of the purchase price.

That bank fee or merchant fee can add up!

At the end of the day, the 2 or 3% fee has left the local area and gone to a multinational corporation. If a customer has a desire to support local merchants they should instead make that payment in cash, then the fee would not be applied and all the money would stay in the local economy. It might not sound like much but these little amounts add up to  significant dollars when it is happening at every business.

4. Stay out of Debt

Using cash instead of credit is one of the best ways to stay out of debt and it is a common recommendation of ours during financial counselling sessions. If you make the decision to only go with cash payments then, in theory, you would never get into debt.

This is especially important for seniors who might be on a fixed pension income. It only takes a few bad purchases on a credit card to start the debt building. Then the high interest rate charges take over and sometimes the balance cannot be paid down.

If a person really wanted a credit card “just in case” then we would recommend a pre-paid credit card that is already loaded up with cash and that has a very modest limit of say $500.

5. Teach Your Kids to Handle Cash

When we are meeting with people, it has been quite common over the years to hear some comment about wishing that their parents had taught them more about money.

By deciding to pay in cash, there would be many opportunities to talk about money with your kids and allow them to ask questions. Some folks use an envelope or jar system to set aside money for groceries and other monthly expenses. This would be an excellent teaching opportunity for a child that is a visual learner.

6. Keep it Simple

Keeping things simple can be a great strategy for many things and especially for handling money and finances. For example, there is no need to have 7 different credit cards and 4 different bank accounts. By using cash, you can avoid having to deal with multiple different statements and payment requirements; peace of mind is a wonderful thing!

7. Identity theft via credit card scams

Scammers and fraudsters are everywhere. By putting out your personal information via a credit card transaction you are exposing yourself to be a possible victim of identity theft or possibly to have your credit card charged inappropriately. You can eliminate that risk by using cash.

8. Purchase tracking

Whenever you make a purchase via a debit or credit card your purchase history is tracked. Most banks offer a tool via their website to show you your purchase history via category. How do they know what all of the stores sell? This can be unsettling to some people.

You can avoid having these large companies know your business by making your purchases in cash which cannot be traced.

9. Avoid Government Control

For those people who are concerned about the government having too much control over the lives of a country’s citizens, cash is the way to go.

It was not too long ago where the Canadian Federal Government froze the banking of some protesters. Some of the public felt this action was justified and many others felt it was inappropriate. Nevertheless, by having cash on hand, you are out of reach, at least temporarily, of being controlled.

10. Plan Ahead

Using cash for most of your daily living purchases forces a person to plan ahead. This is a more important point than you might realize at first. Planning ahead is a key component to keeping your finances on track and we highly recommend it.

Going so far as estimating your living expenses for an entire twelve month period can be very useful. While some expenses are routine and predictable, many others might occur just once a year or randomly.

By using cash, you are forced to think ahead in order to arrange how much cash to have on hand.

Conclusion

It seems more important than ever to not let your spending get out of control. Using a credit card or debit card sometimes enables you to spend more than you realize. By only using cash, you can visually see your resources depleting and it can help you avoid running monthly deficits which in turn can lead to too much debt.

If you find yourself in debt now, there are Canadian debt relief programs that you should know about. These programs are administered via a Licensed Trustee Office which is us! .

We would recommend that you take advantage of our free initial consultation and contact us to set up an appointment where we can discuss your specific situation. No referral is required. This will ensure you have all the information you need to make a good choice. Feel free to contact us today!