Disclaimer: If you have problems managing money, then this post isn’t for you.  But if you are disciplined and don’t spend what you don’t have, then read this post and then please add to the discussion in the comments.

I know. Strange title.  Having cash is always good.  However, using cash to buy what you need isn’t always the best.  Let me explain.

Over the past decade (especially with a significant portion of purchases occurring online) the consumer has been very skillfully maneuvered into using credit cards for absolutely everything.  Unfortunately, this has been to the detriment of many who have become overextended literally bankrupting themselves buying what they want but can’t afford. The attraction has always been low interest rates or the belief they will be able to pay their credit card debts off down the road.  Those who would chastise those who get in over their heads will smugly sing the refrain:  Pay with cash – stay away from credit cards.  Cash good.  Credit cards bad.

However, it is has now gotten to the point where using physical cash (or a check or debit card equivalent) to purchase anything is actually costing consumers much more because when you pay with cash you are actually overpaying (unless there is a cash discount offered or it is a private transaction).

Yes, it’s true.  Make everyday purchases and business purchases with cash and you are overpaying for those same products and services.

I don’t know about you but I HATE overpaying for anything. Now more than ever credit card companies are enticing purchasers with a variety of incentives to use their credit cards. These incentives include cash back, airline tickets and any manner of special interest benefits such as golf clubs.  A percentage of these rewards are already built into the fees paid by the merchants who sell you products or services as well as the partners offering the rewards.

Whether you pay for the merchandise with cash or credit you are paying a premium for these credit card fees and rewards.  When you pay with cash you lose out on any benefit which could flow back to you…so you are overpaying.

Now at this point you might be saying it’s just a gimmick.  For the unsuspecting it IS a costly gimmick because if you don’t use the credit card properly you will be paying interest and more interest and more interest and this is what the credit card companies hope will happen thereby offsetting the rewards they give to those who are responsible users of their credit cards.  That’s why if you are not financially as diligent as you should be this post is not for you.

Over the past few years I’ve purchased everything with credit cards.  Everything.  Why?  Because no matter what I buy, groceries, gas, lodging, school tuition, summer camp, business supplies, my monthly wireless service, business entity tax, car registration…even the down payment on a new car…I get minimum 1% and up to 5% cash back.  Last year between two cash back rewards cards I got back over $1,200 in cash.

But here is the rub.  Each and every month I pay off the credit card balance in full.  I never pay a dime of interest nor have I in 11 years.  I don’t pay for anything with a credit card I can’t afford to pay for with cash at that moment of purchase.  I simply borrow the money for a few weeks so I can get a cash back reward because I hate overpaying.

I have two separate cash back rewards cards I rotate during the month. I make large purchases on the first day of a new billing cycle which allows me to ‘borrow’ the money for up to six weeks while not paying interest and still getting cash back.

If this benefit isn’t good enough for you then consider these three additional benefits, especially as a busy solo.

First, having all your expenses documented each month by the credit card company as well as an end of year summary (which I get from American Express) helps considerably at tax time.

Second, you retain the ability to challenge purchases if needed.

Third, if you lose a receipt and need to return an item more and more vendors can simply look up your credit card, locate the transaction and give you a credit back to your card.  If done during the grace period before payment you are never cash out of hand for an item.

The simplest and most effective way to do this is to be sure you don’t ‘accidentally’ spend the money before the due date. At the time you make a purchase,  subtract the dollar amount  from your (online) check register just as if you had written a check.  Seriously.  It is that easy if you are disciplined.

To avoid the hassle of writing checks and incurring late fees  if you miss a due date, either have the credit card company deduct the payment from your checking on the due date (not automatically but after you’ve reviewed the bill each and every month) or do direct bill pay from your bank. For time savings, I review the bill upon receipt and then immediately schedule the payment for the due date which could be up to three weeks later.  But it’s now out of mind.

Done correctly, it is about not overpaying for goods and services simply because you are trying to be prudent and not spending what you don’t have.  By being financially responsible you can get all the benefits of credit card use without the associated costs and not overpay – two good habits you should either already have or start developing going forward.

Imagine getting a chunk of change back to buy that scanner or iPad, make a student loan payment, or bring in a virtual assistant for a few hours.  It’s YOUR money so stop giving it away to the credit card companies.