From our mailbag:
After reading your article on the Sam’s Club credit card that gives you 5% cash back when you buy gas (article can be found here) we thought that was a good idea since we spend a lot on gas.
Now that we have the card, we don’t know if we should use it or not. One of the gas stations near us gives you a discount of 5 cents if you pay for your gas with cash.
So is it better to take the 5 cent discount or the 5% cash back. My husband thinks it depends on if we are filling up his truck that takes 25 gallons or my little car that takes 12 gallons. I think it depends on if the price of gas is high or low. Maybe it’s both?
So should we pay for our gas with cash or credit?
Good question, Brittney. The answer of “cash or credit” actually doesn’t depend on the size of your gas tank, although the effect of the amount you save by making the right choice is multiplied if you buy more gallons of gas.
The real answer is it depends on whether or not the percentage cash discount you would get is greater than or less than the percentage cash back you would get from your credit card. I wrote a calculator to help you figure it out, which can be found here:
A few boring disclaimers
This calculator assumes a few things. First of all, it assumes that you pay off your credit card each month so you don’t pay interest. If you do pay interest on your credit card you should never use it. Not ever. Pay with cash.
The calculator assumes that you get cash back on your credit card instead of points. Who knows what points are worth?
Finally, the calculator assumes that you will eventually cash in your cash back (or points). This seems like a pretty obvious assumption, but amazingly, about 75% of people don’t. I assume this 75% of people is mostly made up of people who get points instead of cash back, but I will go ahead and point it out anyway. If you never get your cash/ points from your credit card, then they have no value and you should go ahead and pay with cash.
Photo by TaxRebate.org.uk