Cash or credit?Updated: March 20, 2019

“Hmmm … cash, debit or credit?” You wonder as you pull out your wallet. You’re at your neighborhood’s mom-and-pop market, and the cashier has just finished ringing up your day’s groceries: the wheel of Brie, Angus beef, fresh arugula, candy red strawberries and guacamole, and while the cashier patiently waits for you to make your payment, you’re pondering the merits of using the cash or debit card in your wallet versus your credit card to buy those delectable goods.

If that intro made you recall instances when you’ve internally engaged in the cash versus credit debate, you’re not alone. Knowing when it’s best to use cash or credit can require some research and extra thought, but we’ve dug up some points to consider when you’re trying to decide which to use.

When should you use your credit card?

When it comes to knowing whether your situation calls for cash or credit usage, it’s good to have a basic understanding of how your credit card works. Your credit card functions by offering you a line of credit, essentially borrowed money from your credit card issuer, that you can use to make purchases. This line of credit is tied to a credit account, and the borrowed money needs to be paid back on time – if not in full every month, at least the minimum monthly payment due. If you are late or miss payments entirely, you could find yourself facing various consequences, such as increased interest rates, fees, account closure and collections.

Now that you know more about how your credit cards work, let’s cover when it’s a good idea to make purchases through credit.

You want to build your credit history

It’s no secret that having a credit history, specifically a great one, can increase your odds of getting better loan rates, more options for 0% APR credit cards/a>, competitive mortgage rates and more. There are several ways to build a credit history, but one notable way of doing so is by using a credit card responsibly. If you can carry out good credit card practices, you’ll build your credit history in a positive way, showing future lenders that you’re a reliable borrower. Note that even if you don’t have the best credit (or any credit), you can still build credit with a credit card by applying for a secured credit card which looks and acts like a regular credit card, but is funded by a security deposit you put down to open the card.

You’re looking for more fraud protection

Arguably, a credit card offers more fraud protection than cash, and the same is true for your debit card. When a thief steals your cash, it can be difficult to retrieve the stolen money unless the criminal is caught, assuming they haven’t already spent it. Once your cash is stolen from your pocket, it’s probably a “goodbye forever” to that hard-earned money. Using your debit card can make you less of a target for straight-up theft of the cash carried on your person, but a thief with access to your debit card can drain your bank account in a snap. On the other hand, if you carry around a credit card and it gets stolen, skimmed or otherwise used fraudulently, you may be able to get some of the money back – and you likely won’t be on the hook for any fraudulent charges. It’s also good to note that if your credit card number is stolen but not the physical card, you still aren’t liable for unauthorized charges.

That’s because under the Fair Credit Billing Act (FCBA), you’re liable for no more than $50 if unauthorized charges are made through your stolen credit card. In addition, if you report your credit card’s loss before the card is used, the FCBA states that you aren’t responsible for the unauthorized charges that may be incurred. On the other hand, if your debit card is stolen or compromised, per the Electronic Fund Transfer Act (EFTA) you could be on the hook for anything from $0 (if you report before any unauthorized charges are made) to all the money taken from your account and then some (if you report more than 60 calendar days after receiving your statement). As you can see, dealing with a stolen credit card may be a better situation than losing cash or dealing with debit card fraud, since credit cards offer far superior fraud protection.

You want to earn rewards on your purchases

If you’re going to be spending money anyway, you might as well reap rewards from doing it, and using a credit card could get you closer to those gains you want. A variety of travel rewards or cash back rewards credit cards out there provide bonuses or perks that could interest you, and because there are so many cards out there with different rewards programs, you may be able to pick and choose what card you want depending on your creditworthiness and needs. For example, if you’re a travel bug, a card like Discover it Miles will help you get closer to your next trip with the ability to earn 1.5 miles per $1 on every purchase. You can also tailor your rewards to your spending by choosing a card like the Bank of America Cash Rewards credit card, which earns more cash back on the category of your choice (there are 6 to choose from), grocery stores and wholesale clubs.

As you can see, credit cards can be enticing and beneficial to use. That said, there are times when it may be better for you to pay with cash or debit rather than credit.

When should you use cash?

While there are many benefits to using credit, there are some circumstances that could make cash usage the better option. Here are a few of them:

When you’re in debt

If you’re in debt, and especially if you have credit card debt, it could be a good call to use cash and to avoid or take a break from credit. That’s because using credit can worsen the situation, partly because the temptation of turning to credit to resolve debt can be high, and the last thing anyone in debt needs is to rack up even more. For example, if you’re dealing with credit card debt, you might take advantage of a balance transfer credit card with a long 0% intro APR period to avoid interest while paying down the debt, and it might make sense for you to avoid making any purchases with the card while you’re working on paying down the balance. If you need to get your finances back on track, a good way to do so could be to stick to using cash or your debit card until your debt is resolved.

You’re working on budgeting

Now, it’s entirely possible to stick to a budget with a credit card. However, if you tend to overspend, it may be a smart choice to use cash for the time being. As mentioned earlier, it can be extremely tempting to use credit when you want to or need to buy this or that and giving in to that temptation can lead to purchases that induce guilt after you make them. For this reason, it may be better to use cash or your debit card if you have trouble sticking to your budget and keeping track of how much you’re spending. That way, you can easily monitor your spending in a more tangible way (e.g., you can physically see what’s left of the paper money and coins in your wallet), potentially making it easier to avoid overspending. Similarly, electing to use your debit card means that you won’t be able to overdraw your account without getting into serious trouble, something that might help you keep your spending in check better than a credit card. Once you have budgeting under control, you should consider making the move to credit, so you can reap the rewards and added protections. As long as you pay off the purchases you make every month, you can avoid credit card debt and stick to your budget.

When a retailer accepts cash but not credit

Nearly all retailers accept payment in the form of cash (and some accept debit but not credit cards), so having cash on hand can be convenient when it comes to certain situations. Maybe you’ve encountered a retailer, such as a mom-and-pop shop or a store overseas, that accepts payments only in the form of cash. For that reason, it may be good to ensure that you always have cash in hand. That said, if you’re traveling outside the country and able to use credit, do so, as it will provide you the added security we mentioned earlier.

Most of the time, it’s a personal choice

As you can see, determining whether a given payment should be made through cash, debit or credit depends on your personal wants and the circumstances you find yourself in. As such, think carefully about how you spend and what your financial goals are, and then strive to better your financial health by using whatever would make life better for you: cash or credit.

Learn more about credit cards to find out what else you can get from them by checking out our reviews of the best credit cards. Also, follow our credit cards blog for financially savvy ways to use credit cards.

Disclaimer: This content is not provided or commissioned by the credit card issuer. Opinions expressed here are author’s alone, not those of the credit card issuer, and have not been reviewed, approved or otherwise endorsed by the credit card issuer. This content was accurate at the time of this post, but card terms and conditions may change at any time. This site may be compensated through the credit card issuer Affiliate Program.