4 reasons why you should use credit over cash

  1. You are protected: Credit cards can protect you from fraud and are safer to carry than cash. They also often provide travel and rental car insurance coverage.
  2. You earn rewards: Whether your card provides cash back, airline miles or other rewards perks, there are likely some benefits to using your credit card.
  3. It’s easier to track your spending: Download your monthly statement into an Excel sheet and easily import it to budgeting apps or spreadsheets, and you will have all your transactions in front of you.
  4. Using credit builds credit: Your credit score and history come from how long and responsibly you use credit. A good credit score can save you money and give you access to better interest rates on loans and mortgages.

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Pros and cons of credit cards vs cash

Both cash and credit have their advantages and disadvantages. Some people have a personal preference for one over the other — so, here's a break down of the pros and cons of each method.

Advantages of credit cards

Credit cards offer many advantages to cardholders. Because there are so many options to attract new clients, cards often give bonuses and promotions at sign-on. While the benefits each card may offer are different, here are a few of the advantages of credit cards in general:

  • Convenient and quick to use
  • Earn great sign-up bonuses
  • Earn cashback, frequent flyer or membership rewards
  • Receive purchase protection & extended warranties
  • Fraud protection
  • Using credit cards helps build your credit history
  • Insurance benefits
  • It makes purchases overseas easy
  • Travel perks with hotel chains and airlines
  • Airport lounge access
  • Grace period to pay back purchases

Disadvantages of credit cards

  • High interest rates can accrue interest quickly if not paid off
  • It is easy to rack up debt on your credit card if you are not careful
  • There is no friction in the payment process, making it easier to swipe your card and spend more than you planned to

Advantages of cash

  • You can only spend the money you have
  • There is no chance of going into debt
  • Some businesses offer discounts for cash payment
  • Some businesses only accept cash - small vendors, pop-up shops, independent contractors
  • If technology fails, you aren’t affected. Remember the 2022 Rogers outage?

Disadvantages of cash

After the pandemic, no one wanted to handle cash, so touch-free options like credit and debit tap increasingly became the norm.

  • Cash is dirty
  • Takes up space, and coins are bulky
  • Counting out cash and digging through your pockets or purse for correct change takes time
  • You have to physically go to your bank or ATM to get more cash when you run out
  • You must keep receipts if you want a record of your purchase
  • If your money gets stolen, there's a very low chance of ever getting it back
  • Challenging, if not impossible, to make online purchases

Why do some places only accept cash?

There can be several reasons a business may not accept credit and instead take cash, only.

When a business accepts payment by credit card, it pays transaction fees — one service charges 2.65% for each credit transaction — and it could take a few days for the business to actually receive the money in their bank account. When accepting cash, the money is instantly in a business's hands.

Businesses must also purchase or lease a point-of-sale terminal to accept card payments. Not accepting credit prevents a business from being charged back through fraudulent transactions.

In small business and service industry work, there may need to be a higher volume of transactions to warrant taking on those extra costs. Workers want to be paid in cash for their work: for instance, your babysitter, house cleaner or local handyman.

Then, there is also the ability to shield income from taxes. That’s not to imply that every cash-operated business hides income from the government, but it makes it easier to do so.

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Earn more with a rewards card

The best rewards credit cards in Canada will let you earn points with regular shopping — the key is to choose a rewards credit card with the best points-earning potential and a solid and worthwhile rewards program that suits your lifestyle.

If you're unsure where to start, consider reviewing a list of the 20 best reward credit cards broken out by category.

If you're preference is a cash back card, consider selecting from a list that offers no-annual fee cash back cards to credit cards with premium reward points for specific category expenses.

If your aim is to reduce the cost of carrying a credit card balance, check out the best balance transfer credit cards — credit cards that charge less in interest and help you pay down large card balances, faster.

For shoppers with a goal to save more on travel expenses — or to supplement their travel budgets using rewards — consider a travel rewards credit card.

How to take advantage of the perks of credit without the fees

The advantages of credit cards far outweigh the disadvantages, if used responsibly. If the perks of using credit want to make you say goodbye to using cash forever, how can you do it in a way that doesn’t lead you to overspend or build up credit card debt? Here are some tips:

  1. Make sure you have a budget: A budget is simply a plan for your money. Knowing how much you have given yourself to spend on certain things makes it easier to be mindful of your spending. Tracking your expenses can also help you stay on top of your spending. For your convenience, there are digital budgeting apps that can help standardize your finances from the convenience of your smartphone. YNAB monitors all your bank and investment accounts, helps you design and (more importantly) stick to a budget, tracks your spending and allows you to set financial goals like saving for a car. It also gives you the advantage of taking a more educational approach to budgeting, teaching users better financial skills and developing good spending habits that go beyond just mindlessly using the app. Signing up for YNAB, which costs either $14.99 USD per month or $99 USD annually depending on your needs, also offers users helpful courses on managing debt and how to create a budget.
  2. Don’t wait for the bill: Treat your credit card purchases like they came from your debit card and immediately transfer the money from your bank. Paying off as you purchase will help you keep your credit utilization rate low (a factor that contributes to your credit score). It will also keep you from overspending and getting bill shock next month since you know how much you have in your bank account to spend in real-time. Always pay off in full!
  3. Monitor your credit: Everyone should check their credit regularly to ensure that there is no fraudulent activity and nothing is amiss. Canadians can get free credit reports from each credit reporting bureau or utilize a third-party service that makes it easy to check your credit score for free.

Bottom line

Using credit can provide many benefits, but it also requires a diligent approach to spending. Small changes in how you approach your credit card spending and repayment can result in big rewards. Make yourself the kind of customer that credit cards hate - one who only earns rewards and benefits and never pays fees or interest.


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Jessica Morgan Freelance Writer

Jessica Morgan is a personal finance writer and the founder of Canadianbudget.ca. She is a millennial mom of one with an MBA from Toronto Metropolitan University. Jessica has a keen focus on enhancing financial literacy among Canadians, particularly among women, and those in the public sector.

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