How to Know If You Should Be Using Credit Cards or Cash

The pros and cons of credit cards and cash aren’t something that is talked about in school. And sometimes, people aren’t aware of the negative impacts of incorrectly using a credit card until they’ve realized they made a mistake. In an effort to prevent others from learning the hard way, I wrote this blog post to help others understand the pros and cons of using credit cards and cash.

Pros of credit cards

  • It’s the quickest way to build your credit score (if used correctly)
  • Benefits like cashback, rewards, access to airport lounges, etc
    • If you’re in the market for a new credit card, definitely check out The Points Guy. It has tons of info and reviews on different credit cards that will help you pick the right card for you.

Cons of credit cards

  • The time required to budget
    • Because I use a credit card to pay for my expenses, I like to take a look at my spending once a week. The further away you are from money, the less attached you are to what you are spending. For example, for most people, handing over $100 at the cashier feels like a lot more money than handing over a credit card to pay $100.
  • Also, the quickest way to ruin your credit score (if used incorrectly)

An alternative to this would be to pay for everything with cash.

Pros of cash

  • It’s easier to create a budget and stick to it
    • Some people cash out their income and divvy it up into different envelopes. The amount for rent will go in one envelope and fun money will go to a different envelope.
  • You don’t need a credit card to build your credit score
  • Using cash to pay for a high ticket item (like a car or home) can put you at the top when competing against others. Or you can ask if the seller will offer a discount if you everything upfront with cash.

Cons of cash

  • No rewards, cashback, or other benefits

I don’t pay for everything with cash because I like the benefits of using a credit card (cash back, points to redeems, special offers, etc) and I make sure to pay off the balance completely at the end of each month.

Which method of payment is right for you?

Now that we’ve discussed the pros and cons of credit cards and cash, it’s time for you to decide which method of payment is right for you. I created this simple image to help you with your decision!

Should you use credit or cash quiz
Yes, having a credit card has a lot of perks. But the only time you benefit from using a credit card is when you can pay 100% of it at the end of the month. Otherwise, the interest you pay will cost you more than the perks the credit card is giving you. But this doesn’t mean you can’t ever use a credit card! Once you’ve gotten better at sticking with your budget and you are confident in your ability to pay it off every month, give it a shot!

Thanks for giving this blog post a read! I hope it’s helped you form your own opinions on which method of payment will be right for you. If you have any questions, please contact me through this form. Or, if you’d like to share other pros and cons, leave a comment!

Want to learn more about personal finance?

Read what I learned from Dave Ramsey that helped me pay off my student loans in less than 5 months.

Or checkout these other personal finance blog posts for new graduates:

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