Credit Card or Cash

In the modern economic climate credit cards are a necessity for most people.  While responsible usage can help one to build their credit rating, too many people fall into a cycle of revolving debt that is incredibly difficult to escape.  So when is the right time to break out the plastic?  Here is a guide for deciding when to use a credit card or cash.


Use Cash Instead

When There Is A Fee For Using Credit

One of the most important factors in determining whether to use a credit card or cash are the associated fees, often required to use plastic.  For example, the IRS will accept credit card payments but levies a 1.87% to 2.35% fee for processing.  That fee far outweighs any reward your credit card company may offer you.

When Negotiation Is A Possibility

It can be tempting to charge large medical bill balances or other unexpected, out of control expenses.  But, before you choose to create a mountain of credit card debt and trade one problem for another consider negotiating with the creditor.  When choosing if you should pay with a credit card or cash, keep in mind that you will pay interest for any credit utilized.  Don’t be reactionary.  Do everything in your power to manage your debt, including negotiation.

When You Want Something You Can’t Afford

Don’t let that available balance be the determining factor in choosing if you should make a purchase with a credit card or cash.  Buying items too expensive to fit in your budget just because you can put it on your credit card is a sure fire way to get stuck in a debt cycle.  Lay it away or save up instead.

When You Are In The Process Of Obtaining A Mortgage

While in the process of buying a new home it can be very tempting to take the credit card shopping for new items for your home.  Don’t do it!  Most mortgage underwriters require your credit rating to be stable.  Changes in your creditworthiness between the time of application and closure can completely derail your chance of buying a home.  Credit card usage spikes can negatively impact your credit score so this is an excellent time to choose to use cash.

When You Are Carrying A Balance

If you already have credit card debt stop using your cards until you pay down the balance.  This is another way people get trapped in an endless cycle of revolving debt.  Try taking credit cards carrying balances out of your wallet.  Only carry credit cards with low to no balances.

Go Ahead And Charge It

When Additional Warranty Or Purchase Protection Is Necessary

When choosing between a credit card or cash purchase considers the fringe benefits included by your card company.  Most offer extended warranties and purchase protection on major purchases.

When Fraud Protection Is Necessary

Both debit and credit card purchases are protect cardholders from paying fraudulent charges but credit cards offer more protection.  Debit cards are far more likely to make a cardholder pay a larger portion of fraudulent charges.

When Traveling

Travelers are far more vulnerable to theft and fraud because of their unfamiliarity with local language and customs.  Lost cash is simply lost.  Lost credit cards can be replaces and damage stopped if not entirely reversed with a single phone call.  Your comfort with your surroundings is definitely an important consideration when deciding if you should use a credit card or cash.

To Earn Rewards

If you can responsibly pay off your credit card balance each month carefully maximizing rewards programs can offer attractive financial benefits.  There are so many great rewards programs now; there is really no reason to carry a credit card that doesn’t offer one.  Do your research and find a card that rewards purchases you already make anyway.

Credit cards are powerful tools that can make or break one’s credit score.  Successfully leveraging the benefits offered by card issuers can protect cardholders from fraud and add value to major purchases in the form of extended warranties and purchase protection.  Credit cards also offer safety advantages and can even make every day shopping profitable.  But, irresponsible card use is one of the greatest contributors to inescapable revolving debt.  Resist the temptation to make purchase just because you have room for it in your available balance.  Never forget that you are paying for the privilege of using credit.  Often it is wiser to save up or lay items away and keep credit card balances at a minimum.  Another reason to carefully consider if you should use a credit card or cash is that many merchants, service providers, government agencies, and other creditors charge a processing fee on all credit card transactions.  Those fees can really pile up and make unexpected expenses you will be required to pay.