Deciding whether to make payments with your best credit card or cash can sometimes be difficult and overwhelming. Credit cards offer convenience and many benefits that cash does not provide. However, they can also make you fall into a cycle of revolving debt that can last for a lifetime.
Many people use credit when they make purchases more than the cash they have or earned. Research has also shown that cash use is about 20% of all payments every year. Also, many consumers say they prefer cards because they are more hygienic and easy to carry than cash. But another research has indicated that consumers are making inroads toward reducing their credit card debt. So, which one is better between the two? The answer depends on what you are purchasing and the payment options. Read on for an overview of some advice on when to use each.
What is cash?
Cash is a legal currency used to exchange goods, debt, or services and requires no extra processing. However, it is becoming less common for people to carry around due to the increasing dependability and convenience of electronic banking and payment systems. Cash is the lifeblood of every successful business. It helps companies cover their operating expenses. These include paying employees, contractors, vendors, and suppliers.
What is a credit card?
A credit card is a type of card facility used by cardholders to borrow funds to pay for goods and services within a pre-approved credit limit. It is issued by a bank or financial services company to customers. The credit card limit is determined by factors such as income and credit score. Also, cardholders pay back the borrowed money with applicable interest and charges.
When it is advisable to use cash
Cash can be used at any time and accepted in most places. It is also quick and carries no risk of identity theft. Here are the conditions where cash is advisable.
To avoid charges.
Failure to pay your credit card bill by the due date might attract interest charges and late fees. It can also affect your credit score and ratings. But paying in full with cash helps you avoid any fees or interest.
Reduce credit card usage
The Consumer Financial Protection Bureau recommends keeping your credit usage below 30%. These help you stay out of debt and the stress of paying interest every month. So, use cash when you find yourself going above the required percentage.
Easy and convenient
Tipping a driver or a waiter with cash is easy and more convenient. Also, some supermarkets prefer cash, and your favourite might just be one of them. Plus, paying with cash when buying groceries often feels easier.
To stay on budget
Are you spending too much on your credit card? Paying with cash is the best option if you want to stick to your budget.
When it is advisable to use a credit card
Credit cards have many advantages when used responsibly. It allows you to purchase what you need and more than you can pay for at once. It also comes with rewards and other bonuses. Here are the conditions where a credit card is advisable.
Secure your money
Many credit cards offer fraud protection and security features that help keep your money safer. Some cards send emergency alerts if they spot suspicious activity on your account. Others allow you to lock and unlock your card when lost or stolen.
Build credit score
Building your credit score is important for a future loan. It helps you gain access to better interest rates and many more. Also, using your credit card responsibly shows you are a responsible applicant for a lease.
Therefore, you can use your credit card if you want to build or rebuild your credit history and improve your credit scores.
Travelling outside the country
It is often impossible to hold a huge amount of cash when travelling to another country. Also, some credit cards do not charge foreign transaction fees. They also provide an emergency replacement card if yours is lost or stolen. This makes it a better option and easy to purchase when you are outside the country.
Need a reward
A rewards credit card allows you to earn cash or points with your purchases. Some credit cards also offer access to premium experiences with their cards. These include concerts, fast food, hotels, and sports events.
Control your finance
Many credit cards have digital tools that help monitor and manage your finances. You can also set automatic payments and manage your account with some credit card.
The decision to use cash or credit card is not a life or death decision. What works for you depends on what you have and what you need. However, learning how to manage your spending and some fundamental rules about budgeting and goal setting can help you make wise decisions. Also, you can get the benefits of the two payment methods if you use them wisely.