You’ve probably heard it before and wondered if it is just a myth. Using cash instead of a credit card can help you spend less. But there might be some truth to this adage, and here is why cash works as well as when it is better to go ahead and use credit.

Why Credit Will Help You Spend More

Studies since the 1970s have demonstrated that using a charge card for transactions dramatically increases a consumer’s “willingness to pay.” This translates to more purchases at higher prices because credit card users have an easier time buying more as well as spending more for items than they would be willing to if using cash instead.

There is just something that makes your say, “ouch,” when you fork over actual cash. On the other hand, running a plastic card through the machine is simple. Because you never see the physical money, the abstract thought of money is less real and easier to deal with. Perhaps this is because when you swipe a card you get to place it back into your wallet. Effectively, you still keep it. But in reality, you’ve just spent a lot more than you might have using actual cash.

How Cash Can Help You Save More

Because handling the actual $20 bill and then giving it away to a cashier is more emotionally painful than running a credit card, people who use cash for spending tend to save. When using cash, you have to make sure you have enough in your wallet before ever entering the store. This initiates a totally different process of thinking more critically about what you buy and how much the items cost. Cash can help you save for several reasons including:

•Encouraging you analyze the price and worth of an item

•Forcing you to go to the bank to get more when you use up what is in your wallet (this makes spending more real)

•Helping persuade you to do without items that you want but don’t need

Using Credit for Bills, Fuel and Food

Of course, there is simply some spending that has to happen every month. From to bills to basic necessities, these expenses are waiting to be paid off each month. In these cases, you may want to use a less painful method of payment.

U.S. News Money recommends utilizing cash back credit cards for monthly bills and necessary purchases such as groceries and gas. These are unavoidable expenses, so you might as well earn a small percentage back.

It might seem logical to apply this thinking to any shopping you do. However, it is typically unwise to charge things that you don’t need because paying in cash will help you to spend less.

Any spending charged to a card should be done carefully. Make sure that you track what is placed on the card because it is easy to swipe repeatedly and then receive a shock when the bill arrives at the month’s end.

Because credit cards are high interest loans, it is important to use them for spending that you can already afford. The idea is to take advantage of the points or cash back that the card offers without letting the credit card company take advantage of you with high interest. Make sure that before swiping your card, you have cash in the bank reserved to pay off the bill immediately.

Using cash can help you save money. And knowing when to use credit and what purchases should be contemplated more carefully with cash can help guide you to financial stability.

Ted Levin is a financially conscious writer who is currently saving with coupons from GreatDeals.com.

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