Credit cards and debit cards are both valuable financial tools, but they serve different purposes and have distinct advantages and disadvantages. The choice between them depends on your financial goals, spending habits, and personal preferences.
You don’t build wealth with credit card rewards and airline miles. You can’t beat the credit card companies at their own game. — Dave Ramsey
Credit cards can make our lives easier, but easier isn’t necessarily better. There can be many downsides to using credit, such as paying a lot in interest, running up a lot of debt, missing payments, and ending up with a terrible credit score. Here’s a review of seven reasons why you might want to just use cash.
1. It’s easy to rack up debt
For starters, if you’re not good at being disciplined with money, credit cards can make it awfully easy to end up in debt — and, worse, rapidly growing debt. That’s partly due to hefty interest rates.
2. You may pay a lot in fees
Another reason not to use credit cards is their potentially costly fees. Annual fees alone can be quite substantial. A common annual fee is Free , but high-status elite cards often charge ₹500 to ₹2500 per year. High-annual-fee cards tend to be fancy ones aimed at higher-income folks. Interestingly, those fees can be worth it, if you end up collecting more than the fee in rewards — cash back, miles, discounts, etc. Still, know that most credit cards actually have no annual fee, so you can definitely find great cards with no annual fee — if you opt to use credit cards.
Credit card companies collect lots of other fees, though. Many charge foreign transaction fees if you charge expenses abroad. According to industry research organizations, credit-card-fee and interest income topped in 2023 .
3. Your credit score could take a hit
You probably know that in order to be offered the lowest interest rates when you borrow money (such as for a mortgage), you want a high credit score. Using credit cards responsibly can certainly help with that, but using credit cards also introduces more risks. Pay a bill or two late, and your score can take a hit. Rack up a lot of debt, and the percentage of your available credit used will rise while your credit score sinks, making you a less attractive borrower.
4. Your identity might be stolen
Using a credit card can also, if you’re careless or unlucky, lead to identity theft and fraud. Some of the ways that crooks can use your credit cards include:
- Going through trash to find old credit card bills or statements with your card number on them. (Many card statements these days only include the last four digits, to thwart such attempts.)
- Installing “skimmers” on machines such as gas pumps and ATMs that process credit card transactions. The skimmers can collect your card number and other information, such as PINs.
- Hacking into companies’ databases of customers and their credit card numbers.
- “Phishing” for your information by calling or emailing you fraudulently and getting you to supply your card numbers. For example, you might get an email that looks like a real one from your bank, directing you to a website to enter the information for some reason.
Clearly, some of these risks can be minimized if you’re careful, but others are out of your control.
5. You may spend more money
Next, know that if you’re using credit cards, there’s a good chance that you’re spending more money than you would if you paid with cash. Credit cards tend to make many people spend more, probably because swiping a piece of plastic through a machine doesn’t feel as financially meaningful as handing over some hard-earned paper currency.
7. There are alternatives to credit cards
The last reason not to use credit cards is this: You just don’t have to. Yes, they can be convenient. But you can use debit cards in most places that accept credit cards — though debit cards have a few drawbacks of their own (such as offering less protection if stolen). Remember that a debit card takes your purchase amount directly out of your bank account, making it hard to overspend. Both credit and debit cards can look very similar, but while one takes your money immediately, the other is extending you a line of credit.
A last, good alternative to credit cards is simply…cash. It may be old-fashioned, but cash is accepted at plenty of places don’t accept credit cards.
