Tuesday, 27 October 2015

Cash vs. Credit

Should you use cash or credit?

Let's take a look at the endless debate of whether it is better to use cash or credit. First off, my opinion...I think both have a place and definitely believe that cash is better for some people but I'm a credit card user and I think the advantages of using them can outweigh the downfalls but only IF YOU'RE CAREFUL! 

Let's take a quick look at some of the pros and cons of each. 

Cash - Pros 
-accepted pretty much everywhere
-no additional fees attached 
-makes you consider large purchases (usually there would be a time lag between wanting something and having to go to the bank to pull out enough cash)

Cash - Cons
-if it's stolen it's as good as gone
-doesn't help build your credit 
-easier to waste cash on small purchases (I'm more likely to stop and grab a coffee if I've got $5 in my purse than if I'd have to put it on a card) 
-can't shop online 

Credit Cards - Pros
-many come with cash back or travel reward programs 
-helps build up your credit 
-can cancel if stolen and a lot of cards have programs in place to rebate purchases if stolen  
-online shopping, which can also get you better deals

Credit Cards - Cons
-high interest rates and often have fees
-easy access to a high limit you may not be able to afford 
-encourage impulse buying 
-can damage your credit

If you've had problems with credit card debt in the past then you may want to stick with using cash or ensure your card has a LOW credit limit to keep you out of trouble. 

Some personal finance gurus (Dave Ramsey and Gail Vaz-Oxlade) are strong proponents of an all cash budget and I think for people trying to pull themselves out of debt that's a solid plan. For those who have control of their spending I think the benefits of credit cards can be really great. The most important thing with credit cards is to make sure you can pay off your balance EVERY month. Even just one month of carrying a balance can outweigh the reward benefits you are earning and so often one month turns to two, turns to three...

The takeaway is that credit cards can be a great weigh to get added benefits from your purchases but you must know your limitations and use them properly.

Should you use cash or credit?

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