When thinking about expenses – whether it is for everyday items like soap, or a major purchase, such as a car – it is helpful to determine the advantages and disadvantages of paying with cash or credit.
To avoid incurring interest fees, it is wise to not charge more than can be paid for each month. For some people, using credit helps them track expenses easily. For others, a credit card lures them into believing, “I really want that item. I can afford it” and they don’t think it through carefully. Then, they are surprised when the bill comes due and they don’t have enough money to pay it in full.
|PROs||The item is fully paid for|
No interest fee will accrue
Will only buy what can afford at that time
|Way to establish a good credit rating – if payments are always paid on time|
Safety and convenience – not necessary to carry large amount of cash for major purchase
No interest fees if bill is paid in full
Can purchase item immediately and use it with the credit card company’s money until bill is sent
|CONs||Possible safety issue if carrying large amount of money and cash is stolen|
More risk if money is lost or stolen – if using credit card the liability for unauthorized us of the card is $50 when credit card company is notified of loss or theft
Credit Rating is not improved
Inconvenience of carrying and getting money
|High interest charges on unpaid balance|
May charge more than can afford
Before using credit, ask:
Try This Exercise:
Think of a purchase you would like to make by credit. Use this calculator and fill in:
Seeing the interest that would accrue if the purchase couldn’t be paid in full may help determine if it is worthwhile to buy the item using credit or wait until sufficient cash is available.
For additional calculators and resources related to managing your finances, check out these links: