In today’s society, there are multitudes of ways to access and pay for goods. From debit and credit cards, to pay services such as PayPal and Venmo, each type of payment method offers advantages and usually some disadvantages. One payment method which has many advantages is the good old greenback, or cash.

Portrait of a woman paying for parking in cashBudgeting

When developing your budget, cash can help you stay on track. The envelope method is one popular money management technique which uses cash and has been around for ages. The basic premise is each envelope gets a certain amount of cash from every paycheck to apply to your designated expenses. The great thing about the envelope method is that you can see exactly how much money is left in your grocery budget for example. If an envelope runs out of cash then there is no additional spending for that category until the next paycheck.

Using cash to control spending

It is also considered easier to manage your spending if you use cash and have a finite amount to spend rather than reaching for a debit or credit card and going over budget. For instance, if you have $100 dedicated to going clothes shopping and that’s all you take with you, you’ll find going over this limit will require much more effort than just whipping out a card. You’d have to take time to leave the store, go find an ATM to get more cash (while possibly paying an ATM fee,) and then go all the way back to the store. Therefore you are just more likely to control your spending if you plan ahead and don’t take the plastic payment methods with you.

How using cash can help your credit

Due to many credit cards offering rewards or cash back programs, many consumers choose to use them to make purchases. If you’re using a card to gain rewards, it’s important to put away cash to pay off the balance monthly so you don’t incur unnecessary interest charges. It is equally important to make on-time payments, as even making even one payment late can lower your credit score.

Since paying with cash all the time won’t help build your credit history, being responsible with a credit card and budgeting monthly to pay your bill can help your credit score. This, in turn, will prepare you for the future if you apply for a mortgage or auto loan and are seeking the best rates. If you are in the process of rebuilding your credit after some setbacks, this is equally if not more important.

Cash helps protect your identity

Every year, millions of American have their identities stolen. The time and effort required to overcome this financial hurdle (not to mention the mental and emotional stress of hackers spending your money and maxing out your credit cards) can be overwhelming. Popular companies such as Target, Home Depot, and Sears have had their cardholders’ information breached.

So, to summarize, there are pros to using cash instead of a debit or credit card or other payment methods:

  • Helps you stick to a budget
  • Helps you know exactly how much money you have left to spend
  • Helps you spend less
  • Can’t be hacked like a credit card
  • Has zero interest and fees on purchases
  • Helps as a negotiating tool on big purchases

For most people, using a combination of cash and a debit card works best to balance the convenience of paying with plastic and the control of paying with cash. As with all financial matters, you’ll get the best results if you take the time to learn which method works best for your individual situation.

For more great information on all things credit-related, head to our 'Basics of Credit' reference page.

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