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. It’s a 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 15 years (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 which is a cash equivalent) to purchase anything is actually costing consumers much more.  Why? When you pay with cash you are actually overpaying (unless there is a cash discount offered or it is a private transaction).

Make everyday purchases and business purchases with cash and you are overpaying for those same products and services.

Personally, 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, monthly statement credits, 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. Now, they are also increasingly being paid for with annual fees paid by the consumer.

Whether you pay for the merchandise with cash or credit, you are still paying a premium for these credit card fees and rewards.  But, when you pay with cash, you lose out on any benefit which could flow back to you. Therefore,  you are overpaying.

Now at this point you might be saying ‘it’s just a gimmick’.  For the unsuspecting and financially inept, it IS a costly gimmick. If you don’t use the credit card properly you will be paying compounding interest.  This is what the credit card companies hope will happen thereby offsetting the rewards they give to those who pay off their credit card bills each month.

Over the past few years my husband and I purchase 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 at minimum 1% (and up to 6%) cash back as a statement credit.  Last year, between two cash back rewards cards, I got over $1,600 back in cash.

But this is the discipline.  Each and every month I pay off the credit card balance in full.  I never pay a dime of interest nor have I in 16 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. I get a cash back reward and I never overpay for anything.

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 credit your card.  If done during the grace period before payment is due, 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  for missing 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 from my bank for the due date which could be up to three weeks later.  But it’s now out of mind and I know it will be paid on time.

If you are planning to open your office soon or you have a large business expenses coming up, have excellent credit and are disciplined, check out the new card I got (sometimes cards run their course and it’s good to switch them out) – Chase Sapphire Preferred which is a Visa.  If you spend $4000 within the first three months, you will get a statement credit of $500!! If you add an authorized user (your virtual assistant, paralegal  or spouse), you get another $50. That’s a whopping $550 PLUS at least 1% cash back on all your other purchases.  If you travel out of the country, there are no foreign transaction fees. Note: there is a $95 annual fee at the end of the first year, but if you are a heavy purchaser and enjoy cash back on all your purchases, it can very well be worth it along with all the other perks they offer. (This is not a sponsored post or link.  Just passing the information along).

My other favorite card is Amex – Blue.  They have a $75 annual fee but they give you a statement credit of $150 if you charge up to $1000 the first three months, give you a statement credit of 6% (up to $6,000 in purchases) on groceries, 3% for gas, 1% for all other purchases and then they have different vendor rewards and much more including various traveling insurances.  This card has given me so much money each year, it’s worth the $75 fee for me.

One last tip: Many people have the Upromise cash rewards card and they get you to believe they will only deposit your cash earned into a 529 plan for a child.  This is not true.  You simply write them a letter every quarter (how I did it when I had the card) and ask them to send you a check directly.

One other thought: more and more lawyers are accepting credit cards for retainers.  Knowing how and when to suggest credit card use to potential clients for retainers is an art form and must be done ethically. Knowing that you can share with someone that they can pay you a $5000 retainer and get 10% statement credit from the credit card company isn’t bad information for you to have in your back pocket.  Just use the information wisely and ethically and appropriately.

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

Imagine getting a chunk of change back to buy office equipment, make a student loan payment, or bring in a virtual assistant for a few hours.  It’s YOUR money so stop giving it away by paying in cash.

Do you have any tips to share?  Do so in the comments.