Some people charge everything to a credit card to rack up rewards points, but that isn’t your style. When possible, you prefer to pay with cash. Maybe you’ve ditched the plastic as a way to curb overspending, avoid credit card fraud or simply because you prefer to shop off the grid. However, despite the many good reasons to pay with cash, it isn’t always the best choice.
Not sure what types of purchases warrant leaving the cash in your wallet? Here’s a look at seven common payments that should always be made with a different form other than cash.
Rent
Writing a check can be a hassle, so if you don’t have the option to pay your rent online, you might opt for cash. However, William Capece, CFP, director of business development at the JS Benefits Group, said doing so is unwise, because it leaves you without a paper trail.
“Too often we hear stories of landlords who evict tenants over unpaid rent, while the tenant swears to have paid,” he said. “Cash leaves no paper trail and thus no proof.” On the flip side, he said landlords should also never accept cash payments for the same reason. “This should be outlined in the renter agreement,” he said.
Home Maintenance and Updates
If you own your home, you likely spend at least some money on upkeep each year. Capece said it’s important to have a paper trail for these expenses, so you don’t forget about them when it’s time to do your taxes. “Those expenses could be added to the cost basis of the home or as a write-off against income,” he said. He recommended consulting with a tax professional for specifics on your unique situation.
Car
Since interest rates are at historic lows, Capece advised against buying a car with all cash. “Utilizing a car loan helps in many ways,” he said. “Dealers make more money when customers utilize debt, so they are more likely to give you a better deal.”
Beyond that, he said paying for such a large purchase in cash limits your ability to invest. If you can swing it, he recommended financing your car purchase and using the cash as the down payment on a rental property. “Use an appreciating asset to pay for your lifestyle,” he said.
Utilities and Other Recurring Bills
If you’re still dropping cash in the mailbox to pay your monthly bills, it’s time to stop. “Most subscription services require a credit card these days, because they understand one thing — we’re more likely to pay our bills by the due date when the money moves from our accounts automatically,” said Cliff Auerswald, president of All Reverse Mortgage, Inc. “You’ll make your life a lot easier and will never make a late payment again.”
Beyond the ease of automatic payments, he said paying your bills with a credit card will help you earn points or cash back rewards. However, he emphasized the importance of continuing to be hands-on with your money.
“You should still monitor your bills monthly to ensure the charges are correct and pay your credit card down in full before you incur any interest there,” he said.
Home Purchase
In theory, purchasing your home with all cash sounds like an amazing life goal. However, Auerswald advised against it. “First, you’ll get a tax break if you sign for a mortgage, which you’ll miss out on if you pay cash in full,” he said. “But even more importantly, if you make an ample down payment with an excellent mortgage rate, you’ll miss out on bigger returns you could earn if you invested that money elsewhere.”
