They say cash is king—but in actuality, it depends on the situation. Sure, cash can be useful for small everyday purchases like filling up your gas tank, haggling at a flea market, or buying something you don't want a record of (say, a surprise gift for a spouse). But according to financial expert Chris Ratigan, VP of business development at Monterey Financial Services, it's also important to consider the potential disadvantages.
"While cash may offer some benefits, such as anonymity and control, it can also be risky and impractical for certain types of transactions," he tells Best Life. "By using alternative payment methods, such as credit cards, you can protect yourself and your finances." Keep reading for the five times you should never use cash.
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1 | A car
ShutterstockWhether you're buying a used car or a new one, don't ever use cash to make a down payment or complete the transaction.
"Dealers typically charge low-interest rates because they know that the average consumer can't afford the cost upfront—so even if you could afford to pay cash for the car, it's often better to pay the low-interest rate, keep your cash, and invest it," says Jack Prenter, CEO of DollarWise. "So long as you can earn a greater return by investing than you would pay in interest on the loan, you'll come out ahead."
This is actually a good rule of thumb for any large purchase, says Ratigan, including a house.
"Carrying large amounts of cash can make you a target for theft, and it is important to have a record of the transaction for legal and financial reasons," he explains. "Instead, it is recommended to use a bank transfer, cashier's check, or wire transfer to complete these types of purchases."
2 | Bills
iStockAccording to Natalie Warb, financial expert at CouponBirds, any purchase that's bound by a contract—like insurance, utility bills, or rent—should be paid for with a credit card, debit card, or money transfer.
When you pay with cash, the only proof you have is a printed receipt that's easy to lose. By paying with other digital methods, you ensure that your bank has a record showing you made a payment.
"Not only is this easier than ever with most services now allowing online payments, but it's also a useful way to keep track of your spending each month," adds Warb.
Bailey Schramm, finance advisor at BizReport, also notes that it's especially crucial to avoid paying cash when it comes to medical bills. If you don't have a clear record of all your payments, it can be challenging to get reimbursement from insurance.
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3 | Travel expenses
iStock / jacoblundWhen it comes time to book that flight, hotel, or car rental for a fun upcoming vacation, experts insist you're much better off using a credit card than cash—for several reasons.
"Many credit cards offer benefits like flight cancellation insurance, lost baggage insurance, and reimbursement for expenses if you need to stay overnight because of a canceled flight," explains Prenter.
For example, let's say there are problems with your hotel room that force you to leave or you're charged for amenities you didn't use. You can dispute those charges through your credit card company, but that's obviously not an option when you use cash.
Not to mention, if you pay cash, you can't take advantage of the rewards points or cash-back offers that many credit card companies provide for travel purchases.
"You also want to leave a trail of your whereabouts in case an accident or anything out of the ordinary happens while you're traveling," adds Nikolay Iliev, a personal finance expert and founder of the VAT Calculator App.
4 | Electronics
Shutterstock/Dusan PetkovicWhether you're buying a new laptop for your home office or flat-screen TV for your bedroom, experts agree it's best to always buy electronics with a debit or credit card. These payment methods offer an added layer of security in case anything goes awry with the product or shipment.
"Often your credit card will give you an extended warranty in case the product breaks," explains Prenter. "Or, if you ordered the item online and it never arrives, you might need to do a chargeback if the store contests the delivery. So, paying in cash for electronics is a big mistake."
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5 | Business expenses
Rawpixel.com / ShutterstockIn the market for a new office chair? Need to put gas in your car for a work-related excursion? Buying lunch for a client? According to Iliev, you should never pay cash for these types of business expenses.
"You want to leave a paper trail of all your business expenses, and the easiest and most accurate way to do that is to use the company's credit card," Iliev explains. "If a credit card is not an option, opt for a check or wire transfer. Sure, you can compile receipts for your cash purchases, but having a record from a third party remains the safer and more accurate route, especially when an audit is required."
Having a digital record is especially useful if you're self-employed or run your own business and plan to write any of those purchases off at the end of the tax year.
Best Life offers the most up-to-date financial information from top experts and the latest news and research, but our content is not meant to be a substitute for professional guidance. When it comes to the money you're spending, saving, or investing, always consult your financial advisor directly.
