Practicing smart spending is necessary if you want to keep yourself out of a financial crisis. However, there is one confusing issue that usually baffle consumers: should they spend in cash or credit?
If you really want to be a smart spender, you need to understand how various purchasing methods can affect your overall financial standing. Usually, this involves choosing between paying in cash or credit cards. Staying out of a financial crisis does not necessary mean you have to get rid of debt completely. On the contrary, being a smart spender will help you face debt without any fear. That means you don’t have to be scared of credit cards.
To help educate you, let us discuss the difference between paying for cash and credit cards.
Why it is wiser to make purchases in cash
Let us start with paying in cash. There are so many benefits when you are paying in actual cash. Let us enumerate them one by one.
It keeps you from overspending. This purchasing method will not make you overspend your monthly budget because you only spend the money that you have at the moment. When it runs out, you have no choice but to stop buying things.
It encourages you to use your budget plan. To be a smart spender means you have a budget planner worksheet that serves as your guide and monitoring tool for your financial transactions. This is how you will make sure that you will spend your money on the important expenses on your list. Otherwise if you could spend your money on unnecessary stuff and end up with nothing when the important bills come knocking in.
It discourages you to make unnecessary purchases. There is a psychological effect to being separated from cash so you can expect that you will naturally think about every expense before you make them.
Basically, these are the benefits of using cash to pay for purchases. You may think that this will already make you a smart spender but you have to understand that there is more at stake here. You must consider that paying only in cash will leave your credit history a bit thin. That means you will have a low credit score.
When is spending with credit rewarding?
Now turning over to credit card spending, it can certainly solve the problems of cash only purchases.
You will have a credit history. Since you are putting yourself through debt, you will be having some adequate credit history in your report. This can help you build up your credit score.
There are reward programs. Most credit cards come with rewards and even cash back programs that you can really benefit from. At least, if you know how to use it properly.
The cashless transaction keeps your money safe. You don’t have to go around carrying too much cash in your wallet. You can actually keep it safe. When you lose your cash, that is it. When you lose your card, you can have your creditor freeze the account for you so the thief cannot use it.
Proves to be useful in emergencies. While this is still debt, you can benefit from the unlimited (or near unlimited) money that you can use. It will help ease your worries about falling short.
While all of these are great, it also presents a couple of important issues on its own.
Puts you in debt. First of all, a credit card will put you in debt. When you use it, you are not really paying with your money. In truth, you are paying with the creditor’s money. You have to pay it back.
You can end up paying for more than the value of your purchase. When you let your credit card balance be carried over to the next month, you will have to pay interest on that. And we all know how these cards are notorious for their high interest rates. You will be wasting your money on that. This is why most financial experts will tell you to avoid using credit cards to buy products that lose value over time.
Which is the smarter spending practice?
That still leaves us with an unanswered question: which is the better spending method? If you want to be a smart spender, you may want to find the balance between the two.
There are certain purchases that work well with cash and there are those that is perfect with credit cards. As mentioned, product that will depreciate in value should not be bought in credit – that means you have to use cash for it. But if you want to maintain a good credit history, you can keep on using your credit card and then pay up the balance in full before the grace period ends.
If you think about it, being a smart spender is all about planning and knowing where to put your money. It involves a fair amount of analysis but there are tools that you can use to help you with this. You can seek out the tools from Fox Business or Yahoo Finance. They have great tools that will help you realize how much you are actually spending.
Diana hates debt just as much as you do. She is a finance writer for National Debt Relief. She aims to provide the best information to win the battle against debt.