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Tuesday, March 5, 2024

If you have a choice, always pay in cash to save money

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After some discussion between pay in cash or by credit cardI decided to pay $750 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 would save $254 and still get a one year warranty and purchase receipt. If I paid $1,004 with a credit card, I would only get 1,004 Chase points. This equates to about $10 – $30 depending on how I use them.

The savings difference should make paying in cash a no-brainer. However, I always like the convenience of paying with a credit card and the purchase protection that comes with it.

I have bought bad products or paid for bad service before. Once you pay cash, it’s harder to get your money back. The big advantage of using a credit card is protection against fraud. While they investigate, you can get your money back. 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 am forever grateful to a major financial institution to give me back $2,000 after my kidnapping in Beijing. If I only had about $2,000 on me and it got stolen, I would be SOL.

Evaluate the supplier’s reputation

One of the things I like about the Internet is the ability to rate a supplier based on honest customer feedback. If the seller averages 4-5 stars on Yelp, with more than 100 reviews, chances are they are good.

Before the Internet, you might only be able to get a few word of mouth referrals. Now you can view dozens of nuanced reviews all in one place and make an informed decision.

My auto service store had 79 reviews and an average 5-star rating on Yelp. I don’t think I’ve ever seen a supplier with an average of five stars and more than 50 reviews before. There is always someone who has a problem and leaves a 1 or 2 star review.

When I spoke to the owners personally I decided that they and the reviews were legit. I asked them to go ahead and order the fan. Then I told them I would come back in a few weeks to finish the job. In the meantime, I wrote a message to get your thoughts.

Roll the dice with cash

Paying with cash is always a small gamble. But I thought the gamble was worth a 25% savings. There were so many positive reviews from suppliers online and my conversation with the owners went well.

The owners aren’t going to close the store for a measly $750. They have a lease to pay and a reputation to protect. They also want to win my business for the long term.

If they were to screw me, they would risk getting a very bad review. It seemed unlikely that they would take my $750 and not perform the car service. They said I still had to pay after the work was done. While there was still a risk, they might not honor the one year warranty if something were to happen.

But it was clear to me that they would do a great job of winning me as a long-term customer. Besides, you don’t want to mess up a blogger with their own platform, do you?

Always pay in cash so you can save

Considerations before paying with cash or credit

In addition to the seller’s online reputation and desire to bring in repeat customers, here are some things to consider before deciding whether to pay with cash or credit card.

7 important considerations:

  • Amount paid – The larger the amount, the more you should consider paying by credit card. More than $10,000 starts to get a little risky when you have the choice of paying with a credit card. There’s a reason why escrow companies exist buying or selling a house.
  • Ability to disappear – Evaluate how easy it is for the seller to take your money and never be seen again. The harder it is for the seller to disappear, the more confident you should be in paying cash.
  • Ability to write a review – If you can’t write a review about the seller because it’s too new or not yet established, you’ll be more likely to pay by credit card.
  • Possibility to pay in installments – If you can reduce your cash payments based on work progress, it may be better to pay cash to save money. For example, I paid my landscapers 20% of our contract price after they completed 20% of the work. I continued to pay in 20% increments until the job was completed.
  • Possibility to film the seller – Being filmed on camera is tricky, but if the seller allows you to do so when discussing the contract and making a payment, you should feel more confident paying in cash.
  • The type of supplier – If you have a service job, it is easier to pay cash to save money. Examples include cleaners, landscapers, unlicensed contractors and movers. It’s hard to pay cash for things you buy online.
  • The ability to do the work yourself – If you can fix the job if it goes wrong, you may be more inclined to take on more risk by paying cash. If you can easily find someone else to do the work for you, same thing.

Free Signup Bonus Money is fun too

What this exercise has also reminded me is that I should also take advantage of the occasional reward for signing up for a credit card. After all, you can save money by paying cash and save money by getting free cash too.

I have my Chase Ink Business Cash credit card for over 10 years. 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 already did that blown far beyond the initial boundaries since 2009, and therefore now only receive 1% cashback on all purchases.

After doing some research, I realized I could transfer my business credit card to the Chase Ink Business Unlimited credit card without annual fees. The card also offers $500 cash back after $3,000 in purchases. But instead of just 1% cashback on all purchases, it offers 1.5% cashback. So I signed up. I easily have $3,000 in business expenses that I need to spend within three months.

Optimize your credit cards for the most rewards

A 50% increase in my cashback percentage is significant. For example, I currently have 342,542 Chase points worth $3,425.52 in cash back.

Chase points

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 another eight round-trip tickets for my family.

I’m surprised I didn’t bother looking for a better business credit card sooner. But I’m not surprised either, since I’ve amassed 342,452 points over the years and didn’t bother to check until I wrote this post. Better late than never.

Note: In addition to paying cash to repair a car and thus get a better deal, the same can be said for paying cash to buy a house. You’ll save even more money if you can. Here are some of my thoughts for it selling stock to pay for a house in cash. There are many considerations.

Cash back rewards

For personal use I also have one Chase Sapphire is preferred credit card. But as stay-at-home parents of a rambunctious toddler, we are no longer frequent flyers. That’s why we can just switch to the Chase freedom without limits 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 cash from a reputable seller, do so. If you can get free money by paying with a credit card for something that can only be paid for with a credit card (like everything online), then do that.

Winning either way feels good!

If only there was a way to get a cash discount on everything we buy online, without transaction fees. That would be a real game changer!

Disclosure: Financial Samurai partners with CardRatings for our credit card product coverage. Financial Samurai and CardRatings may receive a commission from card issuers. Opinions, reviews, analyzes and recommendations are the author’s alone and have not been reviewed, endorsed or approved by any of these entities.


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