Do You Spend More With Credit Cards? What We Learned Using Only Cash

We aren’t anti-credit card. That said, we HATE credit card debt more than Rachel Green hates the phrase “we were on a break.” While I’ve never carried a credit card balance, I’ve seen firsthand the pinch that credit card debt can cause. We’ve heard proponents who are against any usage of credit cards say that you spend more with credit cards than you do with cash. So we decided to put that theory to the test with a real world experiment. Below, we cover what we learned spending only cash for three months.

• Myth confirmed: we spend more with credit cards than with physical cash
• It’s highly inconvenient to use cash only in a world built around the credit card system
• Tracking your spending of where your money goes can be harder with cash unless you separate it out
• Build a cash-only spending system intentionally, using it in the areas where your know you need to cut down spending, such as eating out or entertainment
• Credit card rewards and credit card hacking aren’t going to be what make you rich
• NEVER CARRY A CREDIT CARD BALANCE

Cash is inconvenient 

I knew this, but I’d forgotten just how inconvenient cash can be. For one, you have to physically go to a banking branch to get cash out in this world of direct deposit ACH paychecks. While we bank locally, it can still be a ten minute drive to head to the bank. Granted, in the grand scheme of life, spending ten minutes once a month to withdraw cash for the budget isn’t a lot, but it’s a hassle you don’t face with a credit card that you can set up on automatic payments or can make a manual payment to in 60 seconds via an online banking app.

Another thing about cash I forgot is I’m terrified of losing it. I have a bit of trauma from losing my gallon-sized Great Value knockoff Ziploc bag of change in high school that was my entertainment money to go to the movies with my friends. How one loses a bag of quarters, nickels, and dimes that had to weigh five pounds, I have no idea. But cash seems to grow feet and walk off around me. With a credit card, I have protection against other people walking off with my card.

And speaking of time and being lazy (or efficient as I like to call it), it can often take longer to pay with cash. For instance, if you want to pay in cash for gas, you have to walk allllll the way into the convenience store to prepay. And then you have to guess how much you’re going to need, which can be a bit like playing the lotto while you’re there.

Cash is harder to track

And I’m not just talking about the cash that grows legs and runs away. We found it’s also harder to track spending when we use cash. Many stores now offer digital receipts, which helps, but several don’t. God help me if a cashier hands my husband a paper receipt. That crinkled up wad of paper loses the war with the washer and dryer before it ever makes it into our budgeting app to track. (To his credit, he’s gotten a lot better since we switched to a shared app, and he can enter charges himself now.)

Some places don’t offer receipts at all. You need a Sheldon Cooper memory to take a mental snapshot of the register before you leave.

If you aren’t tracking your spending, this isn’t a big deal. But we think pretty much everyone should have a budget to help them reach their financial goals. Especially if you tend to overspend, tracking can help you save more and invest more, and that’s hard to do when you don’t know where your money is going.

It’s almost impossible to live completely card free

Have you ever tried to pay cash for an Amazon purchase? It’s not happening. If we had an Amazon purchase we wanted to make during our three-month cash experiment, I had to “pay myself back” from the cash envelope by transferring that cash to another DO NOT TOUCH, THIS MONEY IS ALREADY SPENT envelope I hid in my dresser. This was a pain in the ass and often turned into a “keep the change” situation because I was not about to break a twenty and move a bunch of nickels around. (Though rounding up could have saved us more that month if we wanted to push it.)

Even vending machines are converting to cashless systems. I’ve seen several that take credit cards but don’t sit there and spit out your crinkled up Washington six times before finally accepting it.

It HURTS to spend cash

This one honestly surprised me by how true it was. When I had to fork over my hard earned Jacksons and Hamiltons, I spent a lot more conscious energy on my spending decisions. Turns out, I was way less likely to part with that money when I physically saw it disappear into the unknown.

The further into the month we got, the truer this became. It was one thing to see the “remaining” amount in the budget get smaller and smaller. But when my little envelope of cash got lighter, it became harder to spend because there is no red overspending on a budget line item with cash the way there is with a credit card unless I went to the bank and took out more (which we’ve already established I’m too lazy to do).

What ended up happening was we put stuff back on shelves in the grocery store. I avoided Books-a-Million like a highly symptomatic friend with COVID who didn’t cover their mouth when they coughed.

The bottom line was: we spent less with cash.

Myth Confirmed.

The cash-only system works best when designed intentionally

I spoke above about what an inconvenience it is to pay cash at the gas pump. I also mentioned how it saved us from splurges mid-month at the bookstore and grocery store.

It didn’t take us long to deduce that cash-only spending can be useful for helping cut spending and reduce debt when used intentionally. Focus your cash-only system on the areas where your budget is leaking more than the Titanic.

Our cellphone bill was a set monthly payment, so there was no point trying to make that a cash payment. But if you know you’re spending way too much on eating out and wish you could put that money toward paying off high-interest debt or toward retirement saving, use cash only for this budget item.

The credit card rewards are definitely a perk, but they won’t help you retire

The biggest reason people use credit cards, apart from the extra layer of security by separating your spending from your primary checking account or walking around with a fat stack of Benjamins, is the rewards. And I’ll admit, they’re a perk.

For the past several years, we’ve fallen into a system where we save up our reward points throughout the year, then cash them all in for a credit against our statement in November to fund our Black Friday/Treat Yoself Extravaganza.

via GIPHY

This helps fund our Selfish Day (as we like to call Black Friday), and curbs our enthusiasm to bolster the entertainment budget throughout the rest of the year.

But the dirty little secret is that credit card rewards, and certainly credit card hacking, aren’t going to be what make you rich. It’s a nice little bonus, but it isn’t the key to wealth.

Some places still offer cash discounts

While this seems to be less and less common, cash discount unicorns still exist with some vendors. You may be able to save a few dollars on your dinner bill out at a local restaurant or hundreds on a large purchase, such as a home repair contractor. We’ve received cash (or check) discounts on projects such as flooring and fencing. The flooring one, funnily enough, asked for literal cash. I’m pretty sure this was to avoid paying taxes, and I did felt a little bad potentially helping them skirt their civic obligations, but not bad enough to pay an extra $300.

The final word

We found it true that swiping plastic, even if it’s a debit card or a credit card we pay off every month, (which we always do. You should never carry a credit card balance. That interest is death!) means we spend more than if we were to use physical cash.

I’ll also confess that after our three-month experiment, the amount we saved in our particular situation wasn’t worth the amount of time and effort we put into it. That’s because:

1) we’re on rung seven of the FIRE ladder

2) our time is worth a lot to us given the opportunity cost of the typical cash savings in our financial situation

3) we learned from this lesson the power of cash, so as a compromise, we don’t overrun the budget categories anymore, which still allows us to save

If you’re struggling to make a dent with your finances, give the cash system a try. And give it a few months. Every new process has an adjustment period. Then see how well it works for your situation and what guardrails you need in place to win with money.

Dive deeper into the debate with our cash vs credit article, where we cover the pros and cons of each and discuss the benefits in different situations and circumstances.

If part of your problem is you don’t have a budget, or don’t have a realistic budget you can stick to, explore our budgeting station for all things related to showing your money who’s boss. We have tons of articles on ideas to cut back spending and expenses.

If you need one-on-one help with your specific budget, we offer budgeting help as well.