I’ve been a fan of my personal finances, budgeting and managing money for at the very least 25 years. In that time I’ve seen many times the suggestion that you pay cash in order to manage your finances. Some argue that cash restricts spending and causes you to feel uncomfortable, and you’ll not want to spend more freely. But I prefer to pay by credit card. I’ve tried cash payments and found it difficult.
The Reasons I Choose to Pay using a credit card
There are many reasons I would rather pay using a credit cards.
Be able to keep track of the money you spend
If I pay using credit card, it is possible to keep the track of my expenditure. When I make a purchase with cash, I don’t remember the items I purchased and have no record of it unless I have an invoice and kept it. When I use my credit card it is possible to look up the credit card statement to see the amount I spent and where.
Credit card payments is a lot more practical. In my experiments with money, there were two issues that usually were the case. The first was that I would lose my cash, go to the shop, only to realize I didn’t have any cash. I’d then have to drive to my home in order to collect my money. If I drove to a stationery shop, I wouldn’t be at ease leaving my children in the car as I paid. I’d have to take my children out in order to pay the cashier at the shop. What a hassle! Paying with a credit card on the way to work was much easier and more secure.
I will always make use of credit cards with rewards programs. We make sure to pay them off each month, but sometimes every week. Since we’ve used responsibly with our cards so that we don’t need to pay interest charges.
In the time we lived in Arizona I used credit card rewards to fund trips home to Michigan. I would keep rewards for an entire year or so before we could have enough cash to fund our travel. My husband and me have moved closer to our family, and we’re using the rewards to plan our international travel.
Many credit cards come with extended warranties. As an example, we purchased a laptop and an updated dryer. Both purchases were charged to the American Express card because American Express provides extended warranties, which save us money on additional security.
Rental Vehicle Insurance
Another advantage of using credit cards is that some cards will provide insurance for cars that you rent. Insurance for cars on rental can cost hundreds of dollars, so it’s a significant savings. But, make sure you know which card provides this feature and then use the car to pay for the rental.
Guarded against Theft
When you’ve got cash and end up losing your cash or the money is stolen then you’re out of luck. Your cash is gone. But, if you make use of an account on a credit or debit card, and someone fraudulously charged you with a charge that is not a credit card, the company will cancel the charge. The credit card company is not responsible. This alone is a great reason to use credit cards instead of cash.
Keeps up the Credit Score
A solid credit score is crucial for low auto loans and mortgage rates. A good credit score could help you save money on the insurance of your vehicle, and can assist you in renting an apartment.
If you regularly use your credit card frequently and then pay it back to in maintaining or building your score on credit. Cash is not able to do that.
Two Disadvantages of paying using credit card
Of course there are two disadvantages when using a credit card for all of your purchases.
Credit Card Data is Stolen
I’ve never had my credit card physically stolen over the nearly 25 years I’ve been using credit cards. However, I’ve seen people create, or attempt to use fraudulent charges at more than four times. Each time the company that issued my credit card was able to spot the fraudulent transaction, sometimes prior to the purchase being approved. But, the company required me to cancel my credit card and issue an alternative one. This was very inconvenient. I couldn’t make use of my credit card in a couple of days as I waited for a new one and I was required to alter all of my autopayments made with this particular credit card. And, even more so, if I didn’t change them all and some companies charged me for a missed payment of $20 due to the fact that my credit card was not valid anymore.
In the past, I’ve had an unauthorized person get my rewards card points, however my credit card provider reimbursed them to me after I discovered.
You might overspend
If you’re unorganized and don’t have an organized budget it is possible to overspend when making use of credit cards. As a young adult, a close friend told me she saw credit card purchases as “free cash.” However, many believe this and spend more money when using debit cards rather than cash.
How do I handle Credit Cards in my Spending plan
To prevent overspending and avoid spending too much, I make sure to use my credit card only to make purchases that I have already planned for. In this case, we utilize You Need a Budget (YNAB) and I also have a separate account for dining out. In other words, if I have $20 left in my budget for dining out and my family would like to go out for dinner but we can’t do it at this moment, since there’s not enough money available in that category for dining out. By utilizing my budget this way I’m able to avoid spending too much using my credit card.
Similar to last year, we had to purchase a brand new dryer. When it was not working for a week, I was able to charge it without hesitation because I had the money in my house maintenance account to pay for the cost of buying.
Paying cash or using credit cards is a personal choice. I prefer paying with credit cards because it allows me to monitor my spending better than cash. Since I mix my use of credit cards alongside the budgeting process, I don’t overspend with my credit cards. We also have to pay down our credit cards every month (or sooner) which means we don’t have to pay interest charges. If you have an outstanding credit card balance that you are unable to pay with cash until the credit card balance is fully paid off could be more sensible.