10 Situations Where Cash Beats Credit


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Credit and debit cards have their place in a frugal consumer's wallet. But paying with plastic is not always the best way to go. In some circumstances, cash is the better option.

Paying with cash makes your spending tangible. It's much harder to make impulse purchases and overspend when you are limited to the amount of cash in your pocket. Carrying a set amount of cash can help you stay within your budget.

Some local businesses offer a discount if you pay with cash. Merchants pay fees in the 3 percent range on credit card purchases, and using cash reduces those fees to zero. Many store owners are willing to share the savings when you use cash instead of credit.

One of the nice things about using cash is that you regularly get change from your purchases. Put the coins in a special savings jar and you'll be surprised how quickly they add up. Depending on how long you collect change, you may be able to pay some gym fees, buy a new gadget, or put the savings toward a vacation.

When you use a credit card, multiple organizations can gain access to your transaction details, including advertisers, credit bureaus, and governmental agencies. Whatever your motivation for keeping a purchase off the record, consider using cash if you'd prefer to remain anonymous.

Using a debit card for small purchases may seem the same as using cash, but debit cards carry extra risks. If a thief gets hold of your debit card, your checking account can be emptied in a hurry. Avoid the risks associated with carrying a debit card by paying with cash instead.

Expert travelers have favored cash over traveler's checks for years now. In general, smaller businesses and restaurants abroad prefer cash. Travel guru Rick Steves suggests converting cash to foreign currency before embarking on a journey. Bring a credit card but use it sparingly. There are drawbacks to carrying cash, such as vulnerability to theft, but if you're cautious this shouldn't be much of an issue.

Many health insurance plans now have deductibles in the thousands of dollars. Consumer advocate Clark Howard advises that patients with high deductibles, who are going to be paying out of pocket anyway, negotiate a cash discount if possible. Many healthcare providers are open to this option, because it makes the payment process easier and more certain. Make the deal upfront and shop around to ensure the lowest price possible.

Tipping in cash is considerate because it provides an immediate payment, whereas the server may not receive a tip left on a credit card right away. Some restaurants also make servers cover the credit card service fee, so a tip in cash is much preferred.

If you find yourself in a shady diner or gas station (unfortunately these do exist) using cash is the way to go. Even the best merchants may hire questionable employees from time to time, and using a credit card can provide an opportunity for theft.

If you're on the fence about a purchase and likely to return it, using cash might be a good way to pay. Although store return policies vary widely, many retailers reimburse customers in the original method of payment. A cash return is immediate, whereas a debit or credit return can take several days to clear. There are some drawbacks to consider, though. If you lose a receipt, many stores can look up a credit card transaction in order to issue a return -- not an option if you paid cash.

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