Using Cash Over Credit Is Costing You Tens Of Thousands Of Dollars

cashorcredit.jpg

This is my second post during financial literacy month and I'm going to take on cash vs credit. One popular financial radio host, Dave Ramsey, has been a vocal critic of credit cards saying to never own one because you will spend more because it is plastic (strangely he advocates for debit cards instead). I don't believe this is the case but of course I strongly advise only using a credit card under two conditions. One: you are going to use it to replace your cash spending and no more. Two: you are going to pay the balance off in full every month and on time. If you are going to just pile up debts that incur huge interest payments every month, then this post is not meant for you.

Today I'm going to look at an example from The Points Guy (a fantastic resource if you want to learn more about maximizing your value via credit card spending) where Nick Ewen looks at one year spending with the Chase Sapphire Preferred Card vs someone using cash/debit cards. I will also add into the equation using the Fidelity Rewards Visa Signature card that earns 2% cash back on all purchases. In this analysis, the person signing up for the Chase card earns a substantial sign-up bonus and earns points for all their spending. Furthermore, during the year, the person takes a trip abroad. The Chase card has the best benefit of no foreign transaction fees, while the debit card incurs 3% foreign transaction fees and the Fidelity card incurs 1% fees. Here are the results:

cash vs credit-1

Final results

Winners:

The person that opens a Chase Sapphire Preferred Card is the huge winner here. The sign up bonus alone is worth $1,050 using the Points Guy valuation of points. By the end of the year, they have earned over 80,000 points or a value close to $1700. The points can be used on luxurious redemption like Park Hyatt Zurich or Korean Air first class. Even without the sign-up bonus, the value of the points is worth $648 so it is a great choice for maximizing your spending if you love to travel. Keep in mind that the card has an annual fee of $95 but that is waived in the first year.

1 2
View single page >> |

Disclosure: Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no ...

more
How did you like this article? Let us know so we can better customize your reading experience.

Comments

Leave a comment to automatically be entered into our contest to win a free Echo Show.
Cynthia Decker 3 years ago Member's comment

While you have certainly made a good case on why you should opt for plastic, you are missing the most important reason: added protection.

When you pay in cash and the item is lost, broken, stolen, the warranty runs out, or you have a problem with the seller, you are out of luck. With a credit card, they'll cover the cost, often with little more than a brief phone call, or at worst, the submission of a bit of paperwork.

Chris Wang 3 years ago Author's comment

Thanks for your comments Cynthia. I agree added protection is another benefit but I would rank cash back/travel rewards as far outweighing buyer protection. Yes the protection is nice but I haven't had to use that in 20 years of credit card usage while I have used credit cards to build a 529 plan for my daughter, points for hotel stays and cash back in the thousands of dollars. Each card has many benefits that people need to be aware of...

Danny Straus 3 years ago Member's comment

This is an excellent point. I've saved thousands in repair costs over the years since credit cards double the manufacturer's warranty up to 1 year.

Alpha Stockman 3 years ago Member's comment

True. I broke the screen on my new 70" 4K TV a couple months after buying it. Amex paid for me to buy a brand new one. All I had to do was upload a copy of my receipt and a repair quote (which would have exceeded the purchase price).