Does Spending Cash Really Save Money When Compared to Using a Credit Card?

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In 2006 my wife and I attended a Dave Ramsey Live Event.  If you happen to be unfamiliar with Dave Ramsey he doesn’t like credit cards.  Actually, he hates them.  If he had it his way he would gather up all the credit cards in the world, shred them, burn them, encase them in cement, then drop it into the deepest spot in the ocean.  I think you get my drift.

Here is why Dave Ramsey doesn’t like credit cards:

You will spend more with credit than cash.  Aside from fees, research is available that says on average you will spend 12-18% more if you use cash.  No one ever got rich by taking advantage of credit card rewards.

Cash Vs. Credit Cards: Do You Spend More?

After the live event my wife and I had some interesting discussions.  She would love to get rid of every credit card in our home because I use credit cards as a way to get free flights and free hotels. She thought it was a little over the top.  I, on the other hand, kept thinking about all the missed points opportunities.  We tried doing the cash thing for a few weeks, but it just didn’t work. Until …

In 2006 my family moved to Alotau, Papua New Guinea.  A country referred to as the ‘land time forgot.’  So without any choice or say in the matter, were were forced to become a cash only family because no one accepts credit cards where we live.

Since we have now operated almost exclusively as a cash only family for three years I wanted to address the question: can you really save money using cash?

Why Cash is Cheaper than Credit Cards

  • Cash adds a level of inconvenience that saves money.  There have been numerous occasions when I have been in a store, items in hand, when I realized I had either forgotten my wallet or didn’t have enough money.  I replace the items on the shelves.  At times I went back to get them, but on other occasions I just didn’t bother.
  • Cash adds a level of inconvenience that costs money.  When using cash tipping at a restaurant typically involves rounding to the closest dollar (or more).  Imagine if your bill and 15% tip totaled $18.78.  If I had a credit card I would typically feel alright about my total charge being an odd number.  With cash, however, I usually don’t ask for $1.22 in change.
  • When you are in the habit of paying with cash, it does not feel any more real than paying with credit.  I can still walk out of a grocery store and not know what the total was.
  • You recognize your spending every time you got to the ATM.  For me the ATM experience proves that we save more with cash than with credit.  It is at the ATM where you ask, did I really just spend $500 in the last week?  The question forces me to go back and review our budget to confirm our spending.  The value of this level of conscientiousness is worth more than any 2-3% you receive in credit card rewards.

My personal verdict?  We spend less with cash than we do with credit cards.

Nevertheless, we do still use credit cards based on some guidelines my family established. If you want to learn more you can read our family guidelines for using credit cards.

What do you think?  Does spending cash save money compared to credit cards?


  1. Craig says

    You’re right. I suspect if people gave it a try they would come to the same conclusion. Many of us (myself included) are/were hesitant to try it. I wonder why?

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