When it’s time to split the bill at dinner with your friends, most people these days throw down a stack of credit cards. The world at large seems to be moving in the direction of plastic. About 30% of American adults say they don’t use cash at all to buy things in a typical week, according to a Pew Research Center survey.
Meanwhile, the survey found that only 18% of respondents use cash for nearly all of their purchases. Some stores and restaurants have stopped accepting cash entirely, in some cases inviting municipal bans on the practice. Countries like Sweden, Denmark and Norway are transitioning to become nearly cashless societies.
But is the move away from cash really a good thing? Some people have decided to buck the trend and go in the opposite direction, opting for a cash-only existence. And when it comes to your own personal spending, is it better to rely on debit and credit cards or turn primarily to cash?
There’s no one answer to these questions — both methods come with advantages and drawbacks. If you’re trying to figure out whether living on a cash-only basis makes sense, here are the different factors you may want to consider:
Pros of cash-only living
Spending money the old-fashioned way can offer some significant perks. Here are some benefits that come with using cash for all your transactions:
It can help you budget and save
Waving a credit card around can sometimes feel like magic. It can be easy to forget that you’re spending real money and to end up charging more than you intend. Using cash can help some people stick to a budget, supporting them to get out of debt or save more.
With cash, you can take out the amount you have to spend for a certain period of time, and when you’re out of bills, you’re done. Or you can set aside the amount you’ve budgeted in envelopes labeled with categories like “rent,” “food” and “entertainment.” Using only the cash you’ve withdrawn can keep you from spending outside of those limits.
You can maintain your privacy and security
Every debit or credit card transaction leaves a digital paper trail. You may not be keen on the idea of corporations keeping a record of everything you buy and when you buy it. An even more troubling concern is the potential for data leaks and identity theft.
In 2017, 143 million people had confidential personal information compromised in the data breach at Equifax, a major credit reporting agency. Identity theft, whether through digital loopholes, a lost credit card, or other means, is a widespread problem.
In 2018, more than 14 million Americans fell victim to identity theft. Using only cash is likely to make you less vulnerable to these security threats since you will have less of a digital presence.
It’s convenient
Sure, swiping a credit card can be faster than counting coins. But unlike credit cards, cash is accepted nearly everywhere, especially with more U.S. cities expanding legislation to ban cashless stores.
Instead of figuring out how to split a restaurant bill multiple ways using credit cards, you can just pay what you owe.
You can avoid interest and fees
Credit cards often come with extra fees. Some retailers charge extra to use a credit card since they have to pay for the transaction. Many credit cards also come with annual fees. Sometimes these fees are waived during the promotional period and can sneak up on you later.
If you don’t pay your credit card balance in full, you’re likely to end up paying exponentially more thanks to high-interest rates. As of May 2019, the average credit card interest rate was 17.85%. And if you’re tardy with making payments, you may owe late fees as well.
Cons of cash-only living
Using cash only can also have risks and disadvantages. Here are some of the drawbacks:
It comes with costs
Many ATMs charge fees for withdrawing cash, which can be troublesome if you find yourself suddenly out of money and need to use an ATM outside of your own bank.
By using credit cards instead of depending on ATMs, you may be able to avoid those costs. There also may be times when you need to mail a check (such as for rent or utility bills), since mailing cash is risky. Postage charges, however slight, can add up.
It has security concerns of its own
Keeping cash on your person or in your home comes with vulnerability. You could be a victim of theft or your cash could be destroyed in a disaster. With no record behind it, the money is as good as gone. On the other hand, you can report a lost or stolen credit card and dispute any fraudulent charges.
You miss out on perks
Some credit cards come with benefits—cash back or rewards points that can be redeemed for travel or other items. So if you pay in cash, you could be missing out on free money.
Credit cards may also come with perks that go beyond the financial, such as fraud protection, no foreign exchange fees, discounts at certain retailers and restaurants, or insurance for travel or car rentals.
You fail to build up a credit history
There’s something ironic about the way lenders look at credit history: If you haven’t borrowed much in the past, lenders may be reluctant to lend to you now.
Opening a credit card account is one way you can build up a credit history (other forms of credit, such as student or car loans, count as well).
A strong credit score is based in part on the average age of your account (the older the better), as well as a history of paying your bills on time and low debt relative to the amount of credit available to you.
Your credit score is an important factor if you’d like to take out a loan in the future, such as an auto loan or mortgage. If you always pay in cash, you may have trouble showing that you have the credit history to qualify.
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