When you pay for everyday purchases, do you reach for your credit card, or are you a fan of debit cards or cash transactions?
The debate about whether it’s best to pay with cash or credit is nothing new. Some people, including personal finance guru Dave Ramsey, believe you should never use credit cards due to the danger of overspending, while others argue that credit cards are crucial to building credit and reaping the rewards with points and cash back earned on every purchase. No matter which side of the best payment method debate you stand on, this post will offer valuable insights as we go over statistics on cash versus credit card spending.
Credit card spending statistics
Before we dive into details, take a look at a few quick credit card spending statistics:
- At the end of 2020, there were 365 million open credit card accounts in the United States.
- Forty-six percent of American credit card users pay with a cashback card.
- Americans lose billions of dollars each year due to credit card fraud and identity theft, losing 5.8 billion USD in 2021, a 70% increase from 2020.
- Digital wallet use increased by 20% in 2020.
- During Q4 2021, credit card balances in the United States rose by 52 billion USD — the largest quarterly increase in the 22-year history of the Federal Reserve Bank of New York’s Quarterly Report on Household Debt and Credit.
- Credit card debt is the most widely held type of debt, according to the Federal Reserve report.
- The average credit score in the United States is 710.
- More than 90% of people have at least one credit card.
- The average credit limit for new account holders in 2020 was 3,952 USD, down from 5,284 USD in 2019.
- In Q1 2020, more than 5% of credit card account balances were at least 90 days past due.
- Credit card application rates dropped in 2020, as did line of credit approval rates.
- Total credit card debt in the United States surpassed 840 billion USD in 2022.
- Fifty-one percent of credit card holders increased their credit balances in the wake of the COVID-19 pandemic.
- Nearly one in five Americans report depending on credit cards to cover day-to-day living expenses.
- People in the Northwest prefer paying with a credit card, whereas cash is king in the South.
Cash spending statistics
Some quick cash spending statistics include:
- Only 10% of American consumers’ preferred form of payment is cash, with just 16% reporting they always carry cash on them.
- The average cash transaction is 22 USD, whereas the average non-cash transaction is 112 USD.
- Americans carry an average of 46 USD in cash, mostly for small purchases and in case of an emergency.
- Eighty percent of cash transactions are less than 25 USD.
- Experts recommend having 100–300 USD in cash in your wallet for emergencies and an extra 1,000–2,000 USD at home in a safe.
- Sixty-two percent of Americans admit they are less likely to overspend when paying with cash.
- Cash transactions dropped by seven percentage points in 2020.
- There was 2.17 trillion USD in cash circulating in the United States as of June 2021.
Debit card usage trends
Recent statistics show that debit cards are used about 2% more frequently than cash. The downward trend of debit card use started back in 2012 with 66% of transactions and continued well into 2020, with 49% of consumers using debit cards for payments. The decline in use is the steepest among consumers earning less than 50,000 USD/year, and 18- to 34-year-olds are the least likely age group to use debit cards (40%). People 65 and older are the most likely to use debit cards (64%).
Cash vs. credit cards: What do Americans prefer?
According to a Fundera by Nerdwallet study, most Americans prefer to go cashless, and their preferred payment method is with a card — in fact, a whopping 80% of respondents prefer paying with cards instead of cash. Fifty-four percent of respondents prefer paying with debit cards, and 26% prefer swiping their credit cards. Only 14% opt for cash payments.
Although credit cards are quickly becoming the dominant payment method and cash spending is on the decline, our society is not entirely cashless. Cash still accounted for 19% of all purchases in 2019, according to the Federal Reserve Bank of San Francisco. There are still some businesses that only accept cash and others that have credit or debit card minimums that consumers must deal with, meaning cash still comes in handy from time to time.
Multiple payments for everyday purchases
Most consumers do not live a black-and-white, strictly cash versus credit cards lifestyle. Most consumers (90% of households) use multiple payment methods, with an average of 3.6 payment methods every month.
A household’s demographics tend to influence whether they use cash or credit for everyday purchases as well. Cash is used more frequently in lower-income households as statistics show that 47% of transactions in households making less than 25,000 USD/year are made with cash.
As household income increases, so does credit card use. In households with the lowest incomes, only 7% of transactions are made with credit cards, and in households that earn more than 125,000 USD annually, the figure increases to 33%.
When it comes to debit card use, the playing field is more even, accounting for 27%–31% of all transactions, with a slight decline among the highest earners.
In addition to household income, credit card use also varies by race. Recent statistics show that:
- 92% of Asian-American adults use credit cards.
- 87% of white American adults use credit cards.
- 76% of Hispanic-American adults use credit cards.
- 72% of Black American adults use credit cards.
Credit card issuers vs. credit card networks: What’s the difference?
Credit card issuers are the financial institutions that provide credit cards to consumers, whereas credit card networks are the companies that communicate between a merchant and a credit card issuer.
The largest credit card networks include:
- Visa: 340 million credit cards in circulation.
- Mastercard: 246 credit cards in circulation.
- Discover: 57 million credit cards in circulation.
- American Express: 53.8 million credit cards in circulation.
In 2021, the seven most prominent credit card issuers were:
- Chase: Purchase volume of 950 billion USD.
- Citi: Purchase volume of 483 billion USD.
- American Express: Purchase volume of 868 billion USD.
- Capital One: Purchase volume of 455 billion USD.
- Bank of America: Purchase volume of 414 billion USD.
- Discover: Purchase volume of 182 billion USD.
- U.S. Bank: Purchase volume of 166 billion USD.
In 2021, these seven credit card issuers generated 3.517 trillion USD in purchase volume, up 25.6% from 2020. They also accounted for more than 77% of the industry’s total of more than 4 trillion USD.
How many Americans have credit cards?
According to the Boston Federal Reserve, nearly 76% of Americans have at least one credit card. But not only are more than three-quarters of American consumers credit cardholders, but many of them also carry more than one credit card. In fact, according to Experian, the average credit card user has four credit cards in their wallet.
What is the most common type of credit card?
There are a number of different types of credit cards available, including:
- Rewards credit cards
- Cashback credit cards
- Travel credit cards
- Balance transfer credit cards
- Student credit cards
- Retail store credit cards
The preferred type of credit card among Americans is the retail store credit card. Experian found that 41% of consumers have at least one retail store credit card.
Retail credit cards can only be used at a specific store or family of stores — for example, a Banana Republic credit card can also be used at The Gap, Old Navy, and Athleta because they are all owned by the same company. These credit cards often offer no annual fees, and people who have credit scores of at least 640 are eligible for them.
Are there advantages to using cash instead of credit?
Of course, cash and credit have their distinct pros and cons. For people looking to manage debt, stick to a budget, and avoid hefty credit card payments, cash may be your best option, as it can help you spend less and know exactly what you’re spending, and the risk of identity theft decreases when you pay only in cash. People are also less likely to overspend when they can actually see the cash leaving their wallets.
Paying with cash is an excellent way to ensure the purchase process is finalized the minute you hand over your cash and receive a receipt; there’s no bill to wait for or interest that will accrue.
Are there advantages to using credit cards instead of cash?
People who prefer to pay with credit cards love the convenience and safety the little plastic card brings. For example, if you’re planning on making a big purchase, you don’t have to worry about going to the ATM, withdrawing hundreds of thousands of dollars, and then carrying that large chunk of change around with you. If your wallet is stolen, you can notify your credit card company ASAP to limit your losses and liability, whereas if your cash is stolen or lost, it’s likely gone for good.
When using a credit card, you don’t have to worry about overdraft fees like you do when making large purchases with a debit card. Credit cards are also the most reliable method for online shopping — although creating a PayPal account is an option for people who want to shop online without a credit card.
Some people also like credit cards because of their ability to help them build credit history and improve their credit scores — if they’re used responsibly, of course. The better your credit score, the lower interest rates you’ll have to pay in other areas of life, including mortgage payments and auto loans.
Consumers also love the rewards that responsible credit card use can produce, including cash back, airline miles, hotel points, and other perks and free stuff.
It’s important to ensure you use your credit card responsibly because credit card debt continues to plague the nation. The average American has more than 5,000 USD of credit card debt, according to the 2021 Experian Consumer Credit Review. Alaska residents carry the highest credit card balance at an average of more than 8,000 USD.
The bottom line on cash vs. credit card spending statistics
Although a move to a cashless society is definitely underway, we are not entirely there. When it comes to the cash vs. credit card spending debate, although credit card use is increasing by the year, people and businesses still prefer cash. To learn about Bankcard’s payment processing solutions for businesses of all kinds, contact us today. Bankcard is a human-first firm that’s the perfect mix of old-school values and next-gen technology. We look forward to hearing from you.