Credit and cash in hand.

Cash Or Credit?

Cash or credit? It seems like it should be such an easy decision, but sometimes it is not. If you are on the fence as to whether to pay cash or put it on a credit card, here are some situations to consider.

You would think that it would be an easy choice. It is obviously better to use cash over credit, right? Why not take a closer look and find out.

When To Use Cash

First, let’s consider some times that you might want to use cash for your purchase.

There is A Cash Discount

Although we are moving closer and closer to a cashless society every day, there are some businesses that still prefer cash. This might be due to credit card processing fees, the risk of fraud with credit or one of a dozen other reasons.

Whatever the case, more companies than you think would prefer cash and many will give you discounts to pay with it. Before you make a purchase, ask if there is a discount for using cash. In any case, that will be a buying cue for the seller and it may force them to step up their negotiations to get you to make a purchase.

You Lack Discipline

Credit is great, but it requires some discipline. The credit card companies make it far too easy to carry a balance. With average credit card interest rates well over 17 percent and with the average person carrying nearly 8000 dollars in debt, you can see why credit card companies want you to carry debt.

For those of you who lack the discipline to pay off your credit card when the statement comes, pay cash. It is not worth the risk of credit card debt.

As A Form Of Budgeting

The envelope system is a very popular and time tested way of budgeting. This is how it works. You put budget allotments for expenses like food and entertainment in an envelope in the form of cash. This helps you to budget, because when the money is gone, there is nothing left to spend. If you want a simple way to budget, you will want to use cash.

When To Use Credit

Now, consider the other side of the argument. Here are some times that credit may be the better option.

0 Percent Interest

A 0 percent interest deal is hard to pass up. It is as if the credit card companies are just giving you money, and they are, to an extent. If you have the credit to get a zero interest offer and the discipline to pay it off in time, it is completely acceptable to use credit for a purchase. Just be careful.

Like all credit card perks, you have to realize that the credit card companies are doing it for a reason. The goal is to get you to charge up your card, so they can eventually charge interest on the debt.

Cash Back Rewards

This is another one of those perks that is hard to resist when it comes around. Cash back can be an even better deal than 0 percent interest, with offers as high as 5 percent. Make a 1500 dollar purchase and get back 75 dollars in cash. Hard to beat that. Just be sure to pay off your debt when you receive your statement so that you come out ahead of this deal.

Purchase Protection

Cash is risky when it comes to purchases. If you get taken advantage of, there is nowhere you can turn. Credit cards, on the other hand, have purchase protection built in. If you get taken, just call your credit card company and ask them for a charge-back. Charge-backs are not automatic, but in most cases, if you were taken advantage of, you will come out ahead.

Record Keeping

If you pay with cash, it can be hard to determine where your money goes, which is why many people use credit cards for budgeting. Every month you will get a statement that will list in detail all of your transactions. Most card companies will even present the details to you in graph form so that you can quickly see where your money goes.

The reporting feature of credit card companies can be a great tool to monitor the spending of your discretionary income. It will show you trends and you can use that information to make positive changes with your budget.

Shopping Online

Finally, there is online shopping. Obviously, you can not use cash for these transactions, but even debit card purchases are more risky online than credit card transactions.

Both debit and credit card purchases are typically protected, but credit card protection is generally superior. If fraud were to happen, credit cards are separate from your bill paying account and the bulk of your money. That means that the bulk of your spending money is not at risk or will not be temporarily held. In other words, it is easier to get your money back if someone charges up your credit card than if someone empties your checking account.

To Sum It Up

There are obviously far more reasons to use credit cards than cash for most purchases in your life. When you do so however, you need to also have discipline. Without it, it is far too easy to get into trouble by charging up your credit cards. So, use those credit cards, enjoy the perks and then pay off your balance on a monthly basis.

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James Car is a finance, loan and budget expert based in the United States. After attending Brookhaven college, he went on to become a successful entrepreneur. He now enjoys writing articles that help people save and make the most of their money.