These days, hip bloggers have taken to sharing their finance routines, and many of them have one thing in common: they’re not using credit.Many consumers are advocating making a switch to paying with cash only as a budgeting method. However, using a credit card is still incredibly important, as building a good credit history will ensure smooth sailing when it comes to taking out loans, applying for a mortgage, or even renting an apartment.
So with that in mind, we decided to have a standoff today: which will win, credit or cash?
Benefits of cash
While it’s important to build a good credit standing, many people often let their credit card use spiral out of control, leading to immense damage to their financial profile.
The ability to use credit responsibly can be very difficult for some people. For those who want an end to the vicious cycle of abusing credit, using cash can be a logical method of cutting back on debt and gaining control of one’s finances again.
According to Forbes, scientific studies have found that people are more likely to buy something when using a credit card instead of cash. The reason for this is because cash seems more scarce to the general consumer, so it’s a resource people try to conserve, whereas credit does not come with the same psychological barrier.
If you as a consumer want to play it safe, you may want to consider using cash to pay for your purchases, which will indefinitely put a stop to spending money you simply don’t have. It can feel so easy to simply slide a card and get a product, but when you receive your monthly statement, the reality of how much money you spent may weigh heavily on you.
If you put a stop to using borrowed money from the bank to pay for purchases you simply can’t afford, your life will be easier in the long run.
Benefits of credit
Though cash may help a shopaholic break expensive spending habits, at the end of the day, credit is still important.
Establishing a history of responsible credit use will give you access to more attractive loans and financial services later on, as well as make your everyday life easier.
For example, you can charge purchases to your card and no longer need to carry a lot of cash. Also, you can reap rewards from your purchases, and choose from cash back, gift cards, travel miles, hotel stays, and more.
As long as you pay your monthly bill responsibly, a credit card can be a great tool for convenience, building up your credit score, and earning rewards for your spending.
However, many consumers end up using credit cards to pay their bills, and struggle to make payments. Therefore, for credit card users with bad habits, combining a routine using credit and cash may make the most sense.
For example, you can switch to cash only for just a few of your spending categories. These should be categories you spend the most on, whether it’s shopping for clothes, or expensive lunches with friends.
It’s simple — after you determine the amount of cash you allot for yourself monthly, put the cash into a few envelopes, each representing a different category. That way, when you run out of your money for the month, you won’t be able to spend until the next month starts.
So MyBankTracker readers, what say you? Do you prefer a cash-only budgeting system, or do you think cash is becoming archaic? Personally, we like the idea of compromising and creating a budgeting tool out of switching just a few categories of spending to cash only.
However, it can be tempting to still splurge using credit cards because you haven’t kicked the habit altogether.