“Cash or credit”? It’s a common checkout question, and your answer may have a big impact on your family’s finances. Both options have pros and cons, which doesn’t make your decision easy.
If you aren’t sure which one you should rely on, keep scrolling. This guide will help you review what you stand to gain (or lose) by choosing cash or credit.
Should You Put it on Plastic?
Plastic’s biggest fans will talk about how it’s the safest way to shop online, and, in some cases, the only way you can reserve a hotel room or book a rental car.
The average credit card also comes with extras to sweeten the deal:
- Rewards points
- Purchase protection
- Fraud liability
- Travel perks
When you’re buying gifts and extra food for the holidays anyway, it makes sense to capitalize on these bonus rewards and protections.
However, they only work in your favor if you have a good handle on your finances. Remember, a credit card is like any other personal loan that you promise to repay. If you can’t afford the purchases you charge to this account, you can get into trouble — even if you make the minimum payment.
The minimum payment keeps the account in good standing, but in doing so, you’ll carry over a balance into the next billing statement. This balance is subject to interest and finance charges, which means you’ll pay more for these purchases. It may also affect your credit history negatively.
You may also tie up your credit limit, leaving you vulnerable to unexpected emergencies. You may not have enough credit available to afford repairs if your car breaks down or your furnace stops working.
If money gets tight, you may end up researching online payday loans as an alternative. While these short term loans offer a convenient way to get cash when you need it, they cost more than the average credit card. As a result, online payday loans should only ever be used in unexpected emergencies when you don’t have savings.
Should You Pay with Cash?
Benching the plastic in your wallet may protect you from overspending. Its proponents champion it as a foolproof way to celebrate the festivities if you’re struggling to keep good money management habits.
It has a no-nonsense limit — you can’t spend more than what you have. You’ll see exactly how much you have left to spend every time you open your wallet.
You’re also more likely to spend less when you’re using cash. Seeing your cash reserves shrink with each expense helps put your next purchase into perspective. Do you really need to buy your kids a baby Yoda on top of all the other toys you already got them? Probably not.
While cash can come in handy if you want to follow a strict budget, it can make things harder. You can’t use cash if you want to shop online this holiday, and even some brick-and-mortar stores may not accept it now during the pandemic. You’ll also miss out on any purchase protections, liability coverage, and perks that come with plastic.
What’s Your Answer?
What you pull out of your wallet at the till is up to you. Both cash and credit come with their advantages, so take the time to figure out which one suits your family. Choosing the best payment method for your finances might help you make merry without overextending yourself this year.