The headline may be a bit misleading, as I still spend money, but the method to how I spend that money is what differs. I rarely — and I mean rarely — use physical cash to purchase goods and services. When I say “cash,” I mean, paper money, the greenback or whatever you want to call it. I use my credit card for everything, even when purchasing a pack of gum.
The costs of most goods and services have built-in credit card fees. In essence, if you and I are interested in purchasing the same good, when you pay cash for that item you are actually paying more than me, assuming I was paying with a credit card. For every purchase I make with my credit card, I earn back, in cash rewards, at least 2 percent and upwards of 5 percent of the purchase price.
So why wouldn’t everyone want to pay with a credit card? Well, there is strong data and evidence to suggest that paying with a credit card can lead to a 12 to 18 percent increase in spending. Paying with a card can lead to paying for something that you would not have otherwise purchased because you are not physically letting go of dollars.
For the longest time, McDonald’s did not accept credit cards because they felt that the credit card fees would eat into their profits. The restaurant business has a very low profit margin so any additional expenses can hurt the business. However, once McDonald’s reconsidered their strategy and implemented credit cards, the average purchase went from $4.50 to $7.00. People just tend to purchase more with a credit card.
Another reason is the lack of discipline in paying bills on time. If you’re prone to late payments, you will likely accrue late fees and interest fees for missed credit card payments. Who cares if you earn 2 percent back if you have to pay a late fee and interest on the purchase?
So, why do I use credit cards? First, I don’t tend to buy things spontaneously; you will not see me purchasing anything near a cash register. I research everything I buy and make sure that the purchase is something that we really want or desperately need. Secondly, once the credit card statement comes in, I pay it. I have never been late on a payment or carried a balance, so credit cards make sense for our everyday purchases.
Credit cards are not for everyone, but if you find one with a decent cash back program and you are disciplined with your budget and your bills, then credit cards are your best friend.
What do you prefer, cash or credit? Tell us why!