After some debate between paying by cash or by credit card, I decided to pay $750 in cash to fix my car fan instead of paying $1,004 with a credit card to get points and peace of mind.
By paying $750 cash, I'd save $254 and still get a one-year warranty and receipt. By paying $1,004 with a credit card, I'd only get 1,004 Chase points. This is equivalent to about $10 – $30, depending on how I use them.
The savings difference should make paying by cash a no brainer. However, I always like the convenience of paying by credit card along with its accompanying purchase protection.
I've bought some bad products or paid for some bad service before. Once you pay by cash, it's harder to get your money back. The huge benefit of using a credit card is fraud protection. You can get your money back while they investigate. And this in turn helps prevent that same scammer from victimizing others.
How much would you be willing to pay to have someone fight to get your money back? I'm forever appreciative of a large financial institution for crediting me back $2,000 after my kidnapping in Beijing. If I was just carrying around $2,000 and had it stolen, I'd be SOL.
Evaluate The Reputation Of The Vendor
One of the things I love about the internet is the ability to review a vendor based on honest customer feedback. If the vendor averages 4-5 stars on Yelp, with over 100 reviews, chances are high they are good.
Before the internet, you might only be able to get a couple of word of mouth recommendations. Now, you can review dozens of nuanced reviews all in one place and make an informed decision.
My auto service shop had 79 reviews and an average 5-star rating on Yelp. I don't think I've ever seen a vendor average 5- stars with over 50 reviews before. There's always someone who has a problem who drops a 1 or a 2-star review.
When I spoke to the owners in person, I decided that they and the reviews were legit. I asked them to go ahead and order the fan. Then I told them I'd come back in a couple weeks to do the work. In the meantime, I wrote a post to hear your thoughts.
Roll The Dice With Cash
Paying with cash is always a slight gamble. But I figured the gamble was worth a 25% savings. There were so many positive vendor reviews online and my conversation with the owners went well.
The owners aren't going to close up shop for a measly $750. They've got a lease they're paying and a reputation to protect. They also want to win over my business for the long term.
If they screwed me they'd risk getting a very bad review. It seemed unlikely they would take my $750 and not perform the car service. They told me to pay after the work was performed after all. Although there was still a risk they may not honor the one-year warranty if something were to happen.
But it was clear to me they'd do a great job in order to win me as a long-term customer. Besides, you don't want to screw over a blogger with his own platform right?
Considerations Before Paying By Cash Or Credit
Besides the vendor's online reputation and the desire to win repeat business, here are some things you should consider before deciding whether to pay by cash or credit.
7 Important Considerations:
- Amount being paid – The greater the amount, the more you should consider paying by credit card. Over $10,000 starts getting a little dicey if you have a choice of paying by credit card. There's a reason why escrow companies exist when buying or selling a home.
- Ability to disappear – Evaluate how easy is it for the vendor to take your money and never be seen again. The harder it is for the vendor to disappear, the more confident you should be to pay by cash.
- Ability to write a review – If you can't write a review of the vendor because it is too new or not established, then you will be more inclined to pay by credit card.
- Ability to pay in increments – If you can cut up your cash payments by work progress, it may be better to pay in cash to save money. For example, I paid my landscapers 20% of our contract price after they performed 20% of the work. I kept on paying in 20% increments until the job was done.
- Ability to film the vendor – Getting filmed on camera is tricky, but if the vendor allows you to do so when discussing the contract and making a payment, you should have more confidence paying by cash.
- The type of vendor – When you have a service job, it's easier to pay by cash to save money. Examples include cleaners, landscapers, unlicensed contractors, and movers. It's hard to pay for things you buy online with cash.
- The ability to do the work yourself – If you can repair the job if it goes wrong, then you might be inclined to take more risk by paying cash. If you can easily find someone else to do the job for you, same thing.
Free Sign Up Bonus Cash Is Nice Too
What this exercise has also reminded me is that I should also take advantage of the occassional credit card signup reward. After all, you can save money by paying by cash and save money by getting free cash as well.
I've had my Chase Ink Business Cash credit card for over 10 years now. For new cardholders, it offers $500 cash back after $3,000 in purchases and 5% cash back on the first $25,000 spent on office supplies, cable, phone, and internet services. But I've already blown way past the initial limits since 2009, and therefore, only get 1% cash back on all purchases now.
After doing some research, I realized I could switch my business credit card to the Chase Ink Business Unlimited credit card with no annual fee. The card also offers $500 cash back after $3,000 in purchases. But instead of just 1% cash back on all purchases, it offers 1.5% cash back. So I signed up. I've easily got $3,000 on business expenses I need to spend within three months.
Optimize Your Credit Cards For The Most Rewards
A 50% increase in my cash back percentage is significant. For example, I currently have 342,542 Chase points worth $3,425.52 in cash back.
If I had used a Chase Ink Business Unlimited credit card, I would have a whopping 513,813 points, worth $5,138.13 in statement credit. Or, I could have used those 513,813 points to buy two round trip tickets for my parents to San Francisco from Hawaii and have credit for eight more round-trip tickets for my family.
I'm surprised I didn't bother looking for a better business credit card earlier. But I'm also not surprised since I let 342,452 points accumulate over the years and not bother checking until I wrote this post. Better late than never. Financial institutions are aggressively competing for all our business.
Cash Back Rewards
For personal use, I also have a Chase Sapphire Preferred credit card. But as stay at home parents to a rambunctious toddler, we are no longer frequent fliers. Therefore, we may just switch to the Chase Freedom Unlimited card. It has no annual fee, offers a $150 sign-up bonus after spending just $500 in the first three months, and offers 1.5% unlimited cash back on everything.
If you can save money by paying in cash to a reputable vendor, do it. If you can get free money paying by credit card for something that can only be paid by credit card (like everything online), do it too.
Winning both ways feels good!
Now if only there was a way to get a cash discount on everything we purchase online without a transaction fee. Now that would be a true game changer!
Readers, what are some other things you are able to pay cash for in order to save money? What are some things you exclusively like to pay with a credit card? To get more great articles and insights sign up for the free Financial Samurai newsletter.
Disclosure: Financial Samurai has partnered with CardRatings for our coverage of credit card products. Financial Samurai and CardRatings may receive a commission from card issuers. Opinions, reviews, analyses & recommendations are the author’s alone, and have not been reviewed, endorsed or approved by any of these entities.