Paying With Cash VS Credit Cards – A Different Take

by Kevin on January 21, 2013

What, another article debating the pros and cons of cash versus credit cards? Yes. And no. I’d like to take a look at this topic from a different angle. Sometimes the reasons we use one product or service has less to do with dollars and cents than it does with non-financial reasons.

That’s how I’d like to approach the cash vs. credit cards argument today.

The usual arguments one way or the other

You’ve probably heard about all the virtues of credit cards over cash. Credit cards offer buyer protection, certain insurance coverage’s, cash back rewards, etc., etc. There’s also the fact that credit cards provide automatic tracking, which can help when it comes to budgeting and year end bookkeeping, especially for business purposes. All serve a purpose in their own place and time.

The point is sometimes made too that credit cards can have a positive affect on your credit scores, especially if you pay off your entire balance each month and keep your outstanding balance low compared to available credit (“credit utilization”). Personally, I don’t see that as a valid reason to use credit cards since you could attain similar and often better results just by having credit cards that you use only occasionally. But I digress…

On the cash side, there’s a strong argument—which I ascribe to myself—that you tend to spend less money when you pay with cash. Then there’s the obvious fact that when you pay with cash, there’s no chance of incurring interest charges or late fees. The one I like best in support of cash is that you’ll never end up paying for this month’s expenses next month, or any month after that.

But now that we’ve noted these factors, we’re not going to spend any time on them. No, I want to focus on one advantage to cash in particular.

Zero chance for identity theft

Have you ever heard of a ring of identity thieves rounding up information on large numbers of cash paying customers? Probably not.

Everyone is worried about identity theft today, to the point that people are spending money on various systems to prevent it. With that being the case, then cash has an undeniable advantage over credit cards. There is virtually no chance of identity theft when you pay with cash!

That makes a very strong case for paying with cash some, most or even all of the time. I’ve never had my own identity stolen, but I can imagine without too much trouble that anyone who has had theirs taken probably doesn’t need to be convinced of the virtues of cash.

Cash = No paper trail

The reason you’re insulated from identity theft when you pay with cash is that there’s no paper trail when you do. You buy your product (or service), drop down your cash, get your change and your receipt, then head out on your merry way. No account numbers are provided, no addresses or phone numbers are needed or stored anywhere. The merchant or his employee have only your cash and virtually no access to your personal information of any kind. The chance that any mischief can happen after the fact is non-existent.

This isn’t to argue that credit card transactions leave you totally exposed. Credit cards do have their own security features, and on balance they work pretty well. But they’re hardly foolproof.

Part of the reason for this is that once a potential thief has credit information in the system or on a piece of paper, he has at least partial information about you. With cash, he has no information on you at all.

Another factor that complicates this is that once we become so accustomed to credit card use that we think of it as second nature, we drop our guard. At that point we’re vulnerable. In addition to the very limited information a thief has as a result of our credit card use, we may be easily persuaded to also provide a phone number, zip code or even a driver’s license. And when we do, the potential for trouble increases.

Cash for small purchases

At a minimum, the paper trail issue makes a strong case for paying cash for smaller purchases. Can you imagine, for example, having your identity stolen on a $3 purchase of a gallon of milk, or a $6 purchase of a pack of cigarettes? It can happen on a small purchase just as easily as it can on a $1,000 purchase of a new laptop computer.

The difference between small and large purchases however is in the numbers. We make far more small purchases than large ones, so the potential for theft rises substantially for what are basically miniscule transactions.

Use credit cards, but…

Credit card use has undeniable advantages with large purchases where buyer protection or some other benefit might be needed, and that’s the time to use them. But gasoline, groceries and restaurant meals—are those the kinds of purchases where you need credit card protections? Not really.

By using cash for smaller, more routine expenses, you dramatically lower your exposure to identity theft. And the smaller monthly credit card bills won’t feel too bad either.

What are your thoughts on using cash to prevent identity theft?

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