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Millionaire Money Habits

July 30th, 2009 at 1:08 pm

Should You Pay With Cash or Credit?

The great money debate comes down to whether it’s better to pay for things with cash or credit.  Some people strongly argue that cash is better, while others see the advantages of credit.  As with many debates, it really comes down your personal situation and preferences.  Which one are you better at managing responsibly?

Cash certainly has some obvious disadvantages to it.  First, if you lose it or it is stolen, you’re out of luck.  There’s no way to track it down, much less prove that it was yours to begin with.  It’s highly advised not to carry too much cash on you at once.  You make yourself a target for theft, especially if someone catches a glimpse of how much you may have.

Credit cards, on the other hand, can be the way to go for large purchases.  You certainly wouldn’t want to purchase a new computer with cash, and that’s assuming you have the funds available in the first place.  With a credit card, you can make monthly payments.  Also, even if it is stolen, credit card companies have many programs in place to help protect you and your identity, and it can be relatively easy to have any fraudulent charges removed.

You also can have the benefit of rewards programs with credit cards, where you can earn things like iPods, store gift cards, and airline miles just for using your card for your purchases.  Of course, the disadvantage to the cards is the inevitable interest rate if you are unable to pay your monthly balances in full.  A $100 purchase placed on your account could cost you another $100 over time.

It can also be easier to overspend with a credit card.  With physical cash, you can watch your funds depleting.  You know when you have to stop spending.  When you’re using a credit card, you generally have a high limit, and without diligently tracking your expenses, it’s easy to go overboard and run into a not-so-fun surprise when your monthly statement arrives.  Debit cards can create the same problem since they function similarly to your credit card despite coming out of your checking account.

If you know you tend to overspend and you’re not purchasing any large items where financing would be advised, cash might be a better option for you.  If you’re able to pay your credit card bill in full or at least meet the minimum payments and you take full advantage of the rewards program, go ahead and use credit.  It may be best to find a good balance between both.  Try cash for everyday expenses and leave the credit card for large purchases and emergencies.



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