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I am new to budgeting and managing my own finances and have a simple question.

Is it better to use cash when credit or debit cards offers discounts. The city I live in, some shops and services offer discounts when using a credit card or debit card of a certain bank.

The problem I have with that is that I don't like having debt. I hate seeing that a portion of my income is already set to go to someone else at the start of the month before I can even use it. Not having any debt helps me sleep better at night.

At the moment, I have some credit card debt that I need to pay in installments and a mortgage.

I discussed paying off all of the credit card debt lump sump to the bank to get rid of it, but I was advised to not do it. Note that it is 0% as long as I pay my payments on time. And will end in a few months. If I pay early, I will have to pay an early payment penalty, which is affordable for me.

I don't know if it matters, but I am saving for something and I believe that paying by cash will help me control my finances.

Edit: So this blew up! This was my first question on this Q/A!. Thanks to all of you so much, helped me a lot in getting a better understanding of cash vs credit card debate. I am choosing the most voted answer as the correct answer, even though other answers also provide valuable advise.

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    discount using credit? Never heard of that, though it's not uncommon in some areas for places to offer a discount for using cash. – Kevin Dec 21 '17 at 18:28
  • You know about careem? It is Uber equivalent of my country, they offered credit card discount when they launched, upto 25% off. But not with cash. Some high end restaurants also do this and some branded shops also offer discount for credit card, I dont know why. – Shaheer Dec 21 '17 at 18:30
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    I really think this is more a question for the Psychology site (I think there is one). From a purely financial standpoint, of course you're better off using cards to get discounts, cash back, or just 0% interest (as long as you actually can pay it off when the 0% period ends), but if it makes you feel bad, then paying cash is IMHO a small price to pay for improved peace of mind. – jamesqf Dec 21 '17 at 18:53
  • Credit card debt with 0% interest? Unless you just opened the account, and it has some promotional period, I've never seen a card with 0% interest. Most cards are astronomically high, around ~25% – dberm22 Dec 21 '17 at 22:03
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    @dberm22: 1) All credit cards I've ever heard of have a 0% interest period - the "grace period" - of about a month between the time you make a purchase and the due date. 2) Many cards nowadays offer a year or so 0% interest on signing up (plus other bonuses). You just get a different card when the current one reaches the end of its 0% period. Privacy also is a pyschological, or perhaps political, question. – jamesqf Dec 22 '17 at 3:52
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You must define what you mean better in order to answer this question.

To me, buying with credit cards is virtually always better because my credit cards maximize my wealth (they offer cash-back, they provide security, they delay my payment, and I never pay interest on them). For you it may or may not be better in this sense depending on the discount amount and how much interest you will pay on the additional amount on your credit card.

Better can mean other things as well. If you are a person who is trying to learn to control your spending, then better may mean it's easier to have discipline when using cash. This is certainly true.

You may also have other reasons to think cash is better, like you have a personal aversion to having debt, even if you pay no interest on it. Nothing wrong with that, but it's not a universal value--I don't feel that way.

First you need to decide for yourself what better means for you, then you can evaluate which option satisfies it.

=========== Additional Info Based On Your Comments ================

Credit cards can be very beneficial if you have fiscal discipline, and they can punish you terribly if you do not.

Advantages of Credit Cards

  • Convenient to not have to worry about how much money to carry around.
  • Credit card rewards. For example
    • Cash back--2% is a good amount
    • Insurance on certain things you buy with it (like rental cars)
    • Price rewind (pays you the difference when you buy something and it later drops in price)
    • And many others
  • Easy monitoring and managing of your spending (you can always look up how much you have spent this month)
  • The credit card company pays for stuff and you don't have to pay them until the end of the following month. You earn a little interest in the mean time. Also if you have a large unexpected expense, you have a month and a half or so to get money to pay for it. Worst case scenario you can carry a balance for a very short time until you can recover.
  • If you are defrauded or your card is stolen, the credit card company will eat the loss.
  • If you pay off your statement in full within the month after getting it, you pay no interest.
  • Having credit cards and paying them off regularly will build your credit and make it easier to get loans for houses and other such things.

Credit cards can be a cruel scourge if you are a person who does not manage your money very well. If you don't pay off your card at the end of the month, you will start paying a lot of interest and you lose your grace period (so that new purchases immediately start incurring interest).

Notice that I am also incredibly averse to debt that charges interest, but if I have a debt that charges no interest and I'm not afraid of my ability to pay it off, I'm all in.

My Advice for You

Pay for everything you can with your credit card (get one with good rewards if you can). Create an account on mint.com and download the app. Check your total credit card balance every time you go to the bathroom. Don't let it get too close to the amount of money you get from your paycheck minus your fixed costs (like rent). Pay all credit cards off at the end of each month. If you have more than a few hundred dollars remaining after paying them off, move the excess into a high-yield long-term savings account that you use for emergencies. If that gets a high balance, then look moving some of it elsewhere, like paying off your mortgage early.

Never use credit cards for long-term borrowing. And of course, don't habitually spend more than you earn.

  • well better does mean having more discipline as I am new to saving. But as I am new to managing my money, I cant really explain much about what really is better compared to what I think is better. To me not having debt sounds good, as that is what I read mostly when reading this website. – Shaheer Dec 21 '17 at 18:43
  • But you also raised important benefits of using credit card. Something that I did not consider, so the point of asking the question is what am I missing out when using cash instead of credit card and when is it okay. Btw, how do they delay the payment and provide security? my card is instantly charged when paying via credit card so where is the security? help me understand. – Shaheer Dec 21 '17 at 18:45
  • @Shaheer the card is charged instantly, but that's that bank's money, not yours. You can wait to pay for it with your money until later. Credit cards are more secure than cash for the same reason: if it gets stolen or misused, it's the bank's money that's spent instead of yours. – Kat Dec 21 '17 at 19:29
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    hmmm, that makes sense, but wouldn't the bank rip me apart (charge an interest or something) if I didn't pay on time? – Shaheer Dec 21 '17 at 19:38
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    @Shaheer yes. This is why it is best to always pay on time (and imo, in full). I use exclusively credit cards and pay in full every month. I consider "wise money management" to be "what can I do to take advantage of EVERYTHING that the banks offer, while letting them take advantage of me the least". Right now, that means a 2% cash back credit card. – BunnyKnitter Dec 21 '17 at 21:05
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TL;DR: since you're carrying a balance on your credit card, you should pay in cash.


There are 3 major things to consider here:

  • How much would you save?
  • How much would it cost you in interest?
  • Would it change your decision to purchase?

How much do you save?

This is, of course, straightforward—the discount they give you times the price. 5, 10, maybe 25%.

How much will it cost you?

For those not carrying a balance, this is somewhere between zero and -5% — yes, with cash back, it can actually cost less with a card than with cash for the same purchase price.

Unfortunately, it sounds like you're carrying a balance. In that case, the exact answer is going to depend a great deal on your specific balance, payment terms, and interest rate. If you pay extra immediately or on the next statement specifically for the purchase in question, it may only cost you a couple percent, less than the discount; if you don't pay extra to offset it, it's likely to cost you a lot more than that.

That said, I would strongly advise you not to put anything else on your credit card until it's 100% paid off and stops charging interest. I don't want to get sidetracked into a full lecture here (there are plenty elsewhere on this site if you need guidance or a kick in the rear), but carrying a balance is expensive and shows a lack of control, and you should work hard and change your buying habits to get it paid down ASAP.

Would it change your decision to purchase

They say you're more likely to purchase something using a card than cash. I'd expect that to be an even stronger effect in your situation. You really need to think twice and be sure you'd definitely buy it either way.

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    just to clarify, the stuff I purchased with credit card was something that I could not purchase with cash at the time and something that I actually needed, my income-to-debt ratio is low, less than 6% in total and will be paid off in next two months. My mortgage is a different story.... – Shaheer Dec 21 '17 at 19:27
  • @Shaheer While that might suggest the warnings about discipline with your money could be toned down, it doesn't change much in this answer. You're still earning interest while you carry the balance, which at minimum cuts into any benefit you get by paying with the card. Particularly, if you read around this site, you'll find that once you start earning interest, you don't have a "grace period" of no interest on new purchases with many cards. Banks make money off the interest you're paying while you carry a balance, so I'd only worry about benefits if I have $0 balance a couple of months. – jpmc26 Dec 22 '17 at 0:05
  • Earning interest? How? Do you mean paying interest? – Shaheer Dec 22 '17 at 14:23
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You have made several statements that make me think you will be MUCH better off sticking to an all-cash (or mostly-cash) plan rather than trying to play the credit card game:

I don't like having debt.

Then don't get into debt. Credit card debt IS debt. It may be short-term debt, you may not pay any interest on it, but it is, by definition, debt. You received a benefit with a promise to pay for it later.

Not having any debt helps me sleep better at night.

Great! then continue using cash and continue sleeping well at night.

I am saving for something and I believe that paying by cash will help me control my finances.

Then why would you stop doing that?

The city I live in, some shops and services offer discounts when using a credit card or debit card of a certain bank.

Companies pay a fee when customers use a credit card, which means that they are getting a kick-back from the banks by pushing their cards. They are still making a profit on the sale, and the bank is counting on profiting from the customers that do NOT pay back the card on time, earning interest and fees for the bank.

I discussed paying off all of the credit card debt lump sump to the bank to get rid of it, but I was advised to not do it.

I get the sense that you're being pressured by friends and clever marketing to use cards to buy everything you see. Are your friends wealthy? If so, did any of them earn their wealth purely by the use of credit cards? No, they are either broke or they work very hard to earn a living and choose to play the credit game.

I fully appreciate the benefits of using credit cards. Points, miles, discounts, etc. But if you don't have the financial discipline to use them wisely and without making any mistakes, then those benefits will be gone many times over in interest, overspending, and other fees.

Not using credit cards is not unwise. There is a very different psychological experience when using credit cards than using cash, which not only have I experienced personally, but others have as well.

  • an old adage - no one ever became wealthy off of credit card deals. It would be a bad deal for the credit card company to "give away" more than it took in. Basic math says the consumer is on the losing end of credit card transactions regardless of the marketing put out by a credit card company. – rocketman Dec 22 '17 at 16:17
  • @rocketman what basic math says that? can you link that? – Shaheer Dec 26 '17 at 13:40
  • by basic, I mean common sense. Credit card companies that make billions per year do not give money away without doing the math to know they will more than recoup their investments. Same goes for drug dealers that give away their first stash to new users. They know that, once addicted, they will make up for the early give away – rocketman Dec 26 '17 at 22:52
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I'll keep it short:

If paying cash affects your purchasing decisions such that you tend to spend less, then pay cash.

If you're going to buy the item either way and the price is not higher than the amount of cash you have on hand, pay it with the card to save some money, deposit that cash at the bank or ATM and pay your bill right away.

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You do have a loan for your extra item that you bought and you pay it off. That's a debt. And beside that, the credit card is just ordinary expense for things that you buy anyway. That's not a debt. Personally I send money to the credit card right after a big expense, say a car repair, any time point in the month, and do not wait for the end-of-month automatic charge. You would at end-of-month pay a part of your big expense, and all of the ordinary-monthly-expenses. You would not add the amounts and think of the aggregate. That also means that you accept card discounts when you would buy the items anyway. You should not buy them just because of the card discount.

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  1. Do you pay your credit card debt in full every month?

  2. Do you pay interest on credit card purchases even when you pay it back in the same month?

If the answer to 1 is no OR the answer to 2 is yes, then you should use cash. [*]. The interest on the credit card will in all likelihood cost more than the discount offered by the merchant.

If 1 is yes and 2 is no, then use the credit card.

My credit card allows me to transfer money to it at any time (any amount). This I do every month when I get paid. Thus my credit card has a plus balance (unless I've gone on a spree ;-) ), and I don't pay any interest charges.

I'd also point out that it's easier to lose track of your spending when using plastic rather than cash.

I believe the reason some merchants are offering a discount for CC payment is to encourage people to make a spontaneous purchase, spending more than they can really afford.

[*] Assuming withdrawing cash from the ATM is free or less than the CC interest.

  • If one pays in full any month why would there be any interest? (I do see the non-US tag, are there countries where this is common?) – JoeTaxpayer Dec 22 '17 at 23:41
  • @JoeTaxpayer There exists a loan (even though it's less than a month) in the time between the purchase and making the payment. It's possible that interest may be charged for this time, even though it's a small amount. Depends on the contract between the Credit Card company and the holder, which is influenced by local tradition and law. (In my case, I pay interest if I go into the negative, even though the balance is automatically paid off in full on the 25th. We're talking mostly cents, but it's there.) – Pete Dec 23 '17 at 16:21
  • I appreciate the comment. It’s my understanding that the CARD act would prohibit this in the US for a standard credit card. – JoeTaxpayer Dec 23 '17 at 18:20

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