22 May Cash vs. Credit Spending

Cash vs Credit Spending

With interest rates on the rise over the past few years, people are more aware than ever of the potential pitfalls of credit cards. It’s increasingly more difficult to get credit and even more difficult to get out of debt. Some have turned to spending cash only as a solution for paying down their balances and this has proved to be a good solution. But now they’re wondering, should we start using credit cards again?

• They’re not ALL bad. There can be some major perks to using credit such as various buyer rewards. The alluring promise of cash back or airline miles is certainly a bonus for using plastic over paper. Credit card companies also offer buyer protection insurance that will reimburse you should your card ever be fraudulently used. Also, this insurance covers your online purchases as well as while you’re travelling internationally.
• Takes credit to get credit. Some people have been spending only cash for so long that they find it challenging to get credit for major purchases late on: cars, houses, tuition, etc. When a lender runs your credit to determine whether or not you are a qualified buyer, they absolutely take your length of credit history into account. This is where it benefits you to have some form of credit whether you use it frequently or not. A loan officer will see that you have had a long-standing relationship with another creditor and have reason to assume you will the do the same with their company.
• Cash is Good. When you stick to spending cash, there are no outstanding debts to worry about, no added interest, late fees or annual fees to tack on either. If credit card debt has been an issue for you in the past then you can most certainly appreciate this fact. Fees of all kinds accrue quickly and steadily if you don’t maintain your balances carefully and diligently pay on time. And of course, this only multiplies when spread out over several credit cards.
• Easy come, Easy go. Cash-in-hand is much easier to track than credit cards. If you have so many dollars in your pocket then you have exactly that much to spend! Running an accurate tally in your head about account balances gets a little trickier. And getting dangerously close to your credit limit could add on additional penalties if you go over. Of course, most major credit card companies offer online account access for their clients so it is possible to stay informed of your balances and use your card responsibly through their website or mobile app.
• The Credit Yogi. It’s all about balance. Credit cards have great benefits but they can become a trap to some buyers. And using cash all the time could make you look irresponsible to potential lenders. So it really is about finding that happy medium between cash and credit spending and what works best for you. By living well within your means, sticking to a reasonable budget and having the self-discipline to manage your finances responsibly, you will be on your way to debt free and stress free living.