In today’s Office Hours, Eric answers Ben’s question: “Is it better to pay in cash for daily purchases or use a credit card?”
This answer can vary based on your spending habits, so Eric is here to outline who may benefit from each option.
Have a question? Post it in the comments, tweet it to us at @BrotmanPlanning, or post it on our Facebook and it may be used in a future episode of Office Hours!
Eric Brotman: [00:00:00] Welcome to Don’t Retire… Graduate!: the podcast that asks you what you want to be when you grow up so you can graduate into retirement with purpose and passion. I’m your host and valedictorian, Eric Brotman. Welcome to Office Hours where we answer listeners questions about personal finance, retirement readiness, and more.
We received a question from Ben who asked, “Is it better to pay cash for daily purchases or to use a credit card?” And Ben, your question’s an important one and one that people, uh, really wrestle with. Um, and so I’m gonna give you a couple of different ways to look at this and a couple of different answers. If you carry a balance on a credit card, if you have credit card debt that is creating sometimes, uh, either expense or problems or both, for you, it would be best to find ways to pay cash for your future purchases so that you’re not compounding that problem.
All right, and I, I know a lot of people don’t carry a lot of cash, but it could also be a debit card, and that’s sort of similar to paying cash rather than having it [00:01:00] on a credit card. So if you have debt, if you’re struggling with student loans, car loans, consumer debt, other credit cards, don’t compound it. If you’re not paying the bill in full pay cash or use some other method.
If on the other hand, you pay your bill in full every month, and you’re taking advantage of airline miles or hotel points or cash back or any of the other perks that come with using a credit card. Use your credit card for everything. Um, I will tell you that I use a credit card for absolutely every purchase that I can, and I wind up with hotel stays or I wind up with cash back, or I wind up with, uh, with other things that frankly are a nice benefit to being able to do it that way. It also means that I get to write one check or pay one bill every month, and it’s for that credit card. So as long as you’re paying it in full, it really doesn’t cost you anything to do it. Now, I will say that some restaurants are now charging, I, I’ve seen this, they’re now charging a a, an excess, a fee [00:02:00] amount for people who are paying with a credit card.
And I’ve seen this a couple different places. It used to be that way at gas stations, uh, and I don’t know how old you are, Ben, but I’m old enough to remember when there was a different price for cash and credit, and then when you’d get gas and there was a gas station trying to lure your business, it would say same price, cash or credit.
And that was like a, a lure to come in. The fact is that credit cards cost vendors money to accept, and that can be 1%, 2%, 3%, um, and it can actually be more than 3%, and so it cuts into the, the profit for a vendor if they allow you to buy it with a credit card. And so I’m now seeing some vendors and some businesses charge more for credit than for cash.
Um, and I will tell you, I pay tuition for my daughter to go to school, and we, I can either write a check for it or I can put it on a credit card and have it be monthly billed. And if it’s on a credit card, there is a surcharge on it to make up for that credit card fee, and that can become a meaningful number.[00:03:00]
So you really have to weigh the pros and cons. If you’re paying more for something for the privilege of using a credit card and the benefit you’re getting from that card is not as big as the extra cost, then don’t do it. So, for example, if a vendor says, “We’re gonna charge you an extra 1.49% to use a credit card, but you get 2% cash back”, well that’s still pretty good.
Uh, you’re still gonna make money on the fact that you use that credit card to make the purchase. However, if that’s not the case, if they’re charging you 3% and you’re getting 1% or 2% cash back, it’s costing you money to do it. So be very thoughtful about how you use your credit card benefits. There, there are, um, there are podcasts and blogs and websites and all kinds of resources about how to choose a credit card that’s right for you.
Um, and the things to avoid and how to game them and how to get the most benefit from them and so forth. Um, I think credit cards are, are terrific. I think they offer purchase protection. I think they offer convenience. I think they offer some privacy, [00:04:00] uh, and I think they make bill paying much, much simpler.
It also makes it easier to do your accounting at the end of the year if you have, if you’re a business owner and you have one card for your business and one card for your personal, it makes separating your expenses incredibly simple. But again, I, I think you have to look at what the costs are to use it in each individual situation, and then do not use a credit card if you’re paying interest on that credit card because there’s no way you’re getting enough benefit to cover that.
It can be 12%, it can be 15%, it can be 26%. Some of ’em are ridiculous and that’s dangerous. I mean, that, that is, um, like digging a hole to get out of a hole. And so you don’t wanna do that. So, Ben, thank you for your question. It’s a good one. And I hope, uh, I hope this helps some folks. I’d like to thank you for sending it along and for listening to Don’t Retire, Graduate.
And if you have a question you’d like us to consider for a future episode of Office Hours, please tweet us @brotmanplanning. Or send us a message at dontretiregraduate.com. Um, we would love to hear from you. We’d also love if you would leave [00:05:00] us reviews and ratings on your favorite podcast site.
They mean the world to us, uh, as podcasters. So thank you for listening. Thank you for being here. Please share the show with your friends and family. We’ll be back next week with another engaging guest. And for now, this is your host Eric Brotman, reminding you: Don’t retire, graduate.
Don’t Retire, Graduate is part of the Evergreen Podcast Network.
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