Cash or credit? What do you use?

I’m a fan of Dave Ramsey, but I don’t think everyone has to be stuck using only cash.

I’m a fan of credit card rewards, but I don’t think everyone is responsible enough to use them.

So how do you really decide whether to purely use cash or whether to get some credit card rewards?

Here’s how you can decide for yourself…

Cash or Credit: A Quick History Lesson

Credit existed long before credit cards.  It was common for local stores to give you a line of credit, especially if you owned a business, but this was thought of more as a charge account that you would pay off all at once.  It had nothing to do with minimum monthly payments or collecting interest.  It was simply a way for business owners to get what they needed throughout the month and then pay the bill all at once, similar to a tab in a bar.

Later on, select department stores and gas stations came out with their own cards to promote customer loyalty.

In 1950, the Diner’s Club card was created as a means to merge some of these cards into one.  People thought it was a bit much to have 5 or 10 cards in their wallet for different stores, though some people today would laugh at only having 5 or 10.

Today, the total U.S. consumer debt is $2.5 trillion, and people sign up for a bout 6 billion credit cards each year.

Credit started to get out of control and so did individual debt.  Thus, people like Dave Ramsey came about promoting a lifestyle free of credit cards and free of debt.  Of course, since Dave started his anti-credit trend, he has had some backlash.  Others have went the other direction by explaining the benefits of credit cards and why you need them.

As you can see, it’s a common trend for people to go back and forth.  So let’s talk about cash, credit and you.

The Case for Cash

Dave Ramsey has a point.  Most people aren’t responsible enough to use credit cards.  Statistics prove this over and over.

That means the majority of people, especially is the U.S., should cut up their credit cards and switch to cash.

This is why it makes me nervous to see all of the articles that talk about Dave being an idiot and how everyone should have credit cards.  I get the point, credit cards have benefits, but broadly speaking to everyone about how they need credit and credit cards is dangerous business, and it’s not true.  Most people would be better off without them, because most people can’t control them.

Note: You also have to remember that article headlines are written to grab your attention, and when you see headlines like “This is Why Dave Ramsey is Completely Wrong About Everything”, they are really just dramatizing the fact that some people can responsibly use credit cards.  They don’t really believe he’s entirely wrong, but you’re more likely to click that, rather than “Why I Disagree With Dave Ramsey About a Few Things”.

Who should use cash?

  • If you have just graduated from college with a massive student loan
  • If you’ve filed for bankruptcy due to credit card debt in the last 10 years
  • If you repeatedly don’t pay off your balance in-full at the end of each month
  • If you have credit card debt that you are working to pay off

If credit cards make you nervous, just use cash.  If you believe that all debt is bad, even for the remainder of the month, just use cash.  There is no one-size-fits-all answer here, just know that it’s not wrong to only use cash and never incur any debt.

The Case for Credit Cards

Credit cards generally provide more fraud protection than debit cards.  Credit cards offer more protection than cash on no-return items and items that may be difficult to return.  Credit cards offer some nice sign-up bonuses.  Finally, credit cards offer some lucrative rewards.  We pay for our vacations and most of our children’s Christmas with credit card rewards.

That being said, credit card companies wouldn’t be earning billions if the majority of people were responsible with them.

So after you’ve completely paid off your credit card debt, and you’re in a place where you can pay them off in-full each month, you should start looking into some of the more rewarding credit cards.

Who should use credit cards?

  • If you’ve never struggled to pay them off in-full each month
  • If you keep track of your spending, and don’t spend more than you have
  • If you don’t have any outstanding credit card debt from previous months

These rules aren’t set in stone.  I’m a great example of someone who has been in credit card debt, learned my lesson and paid off all of my credit card debt.  Once I was completely free of credit card debt, I started using credit cards for the rewards.

Credit cards rewards are great, but they are just that: rewards.  Rewards are meant for people who deserve them.  This is evident when you look at the terms for the rewards, such as completely losing them if you’re late on your payment – that’s a common term for most credit cards.

If you’re responsible in using them, you won’t have to worry about that.  If you are worried about losing them because you make a late payment, there’s a good chance you shouldn’t be using them in the first place.

It all comes down to this: if you can use credit cards responsibly, use them.  If you can’t, use cash.  And be honest.

I cringe when I hear someone say that everyone should use cash or everyone should use credit cards.  That’s simply not true.

Do you use credit cards or cash mostly?  What’s your reasoning?