Should You Take a Cash Discount, or Pay More to Use a Card

Some merchants charge less if you're willing to pay with cash.

Woman holding dollar bills and coins
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Credit card processing fees are always a hot topic for merchants, and while certain card issuers take a significant cut from small businesses with low volume, for corporations, these fees are simply a cost of doing business. Enterprising businesses have developed a solution for combating fees without breaking the law (or a card issuer agreement), while some merchants still don't accept credit cards for any transactions. Of course, select establishments may want to avoid a credit card paper trail for "tax purposes," opting to (illegally) exclude cash from their taxable income, but the majority likely want to eliminate unnecessary costs wherever possible. And in some cases, that might mean encouraging customers to keep their credit cards in their wallets.

You can't blame merchants for trying to save money, and while many people still pay cash for a majority of purchases, even when it's less convenient, that's certainly counter to your own objectives as a miles and points collector. Unless you've somehow managed to find a way to cash out prepaid debit cards that you picked up at Office Depot while earning 5 points for every dollar and are in turn using that cash to pay for goods and services, you're not doing yourself any favors by opting for greenbacks over points-earning plastic. (Unless, of course, you tend to carry a balance on your credit cards, in which case your monthly fees almost certainly outweigh any benefit you're gaining from the points you earn).

Currently, the most common place you'll run into a "cash discount" is at the gas station. Many outlets aren't shy about their preference for cash, and if you do opt to pay with a card, you'll be charged a greater amount for each gallon of gas you buy. Like with all purchases, you'll want to decide which card to use (or whether or not to use a card at all) based on the value you've calculated for a particular type of reward. So, if the cash price is $4.00 per gallon and you'll pay $4.20 per gallon when you pay with a card, a 5-percent surcharge, you'll need to get at least a 5-percent return in order for that transaction to be worthwhile. Unless you're using a card with a significant category bonus for purchases at gas stations, it's probably a better deal to just pay cash.

Even when a merchant doesn't advertise lower payments if you're using cash, they may still be open to cutting you a deal. If you're buying groceries or treating your family of four to dinner, it probably doesn't make sense to even ask, but if you're buying an expensive piece of jewelry or negotiating a flat fare for an extended trip in a taxi, there may be significant discounts to be had. For merchandise, though, it's important to remember an often overlooked benefit to paying with plastic: extended warranties and returns. Some card issuers will double the manufacturer's warranty or even provide a full refund when you ask to return goods that a merchant won't take back, and if you anticipate needing to take advantage of such a policy, forgo the discount and pay with your card.

Similarly, there may be opportunities to pay with a credit card that you wouldn't have even considered. Some universities accept credit card payments for tuition, and while there are fewer options than before, certain services make it possible to pay down your mortgage using a card instead of cash, for a fee. Some car dealers may also let you pay with a credit card if you're buying a vehicle without bank financing. Like with the discounts discussed above, don't forget to calculate the value of the points you'll earn before you swipe -- using your card makes sense much of the time, but in some cases, you'll benefit more from paying with cold, hard cash.

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