7 Things You Should Never Pay for With Cash
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.
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.
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.
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.
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.
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.”
When you go to sell the home and earn a profit, you’ll still walk away with the same amount of cash, he said.
“Holding back some of that money and investing it in the S&P 500 can see average returns of 10% — much more than the cost of your mortgage interest,” he said.
There’s a good chance you make digital purchases — e-books, audiobooks, downloadable games or streaming service subscriptions — fairly often. When paying, Julie Ramhold, a consumer analyst at DealNews.com, advised against modes that link to your bank account.
“If you pay with a cash app or a debit card, the money is immediately deducted from your account, which means you’ll have a hard fight if you don’t get what you paid for and have to fight the charge,” she said. “If you use a credit card, you’ll have more options for legal recourse, even if you have to rely on something like a chargeback when other options fail.”
Purchasing an expensive electronic item –i.e. a television, smartphone, tablet or computer — with cash can feel liberating, but Ramhold said it can also put you at a disadvantage.
“Basically any electronic purchase should be done with a credit card,” she said. “Not only will you have some purchase protection by doing this, rather than paying with cash, but many credit cards offer extra warranties on top of what a product may come with or what a store will offer.”
When spending hundreds or thousands of dollars on an item, you want to make sure your purchase is protected, so steering clear of cash is your best bet.
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