How smart is your credit card?

Is it better to use Cash or Credit? There are some who swear off credit cards completely, believing they only bring financial ruin to most. At the same time, others swear by credit cards for their security, convenience and rewards. While this isn’t a one-size-fits-all issue, it’s worth considering the pros and cons of cash versus credit transactions. Ultimately it’s a personal decision and you have to decide what works best for you.

To give you a few things to consider we have come up with the following:

The Benefits of Spending Cash

• Control Spending: Spending cash can help many control how much the spend in two ways. First, as the old saying goes, you can’t spend what you don’t have. If you stick to cash, once you’re out, you’re out. Second, study after study has shown that many folks tend to spend less many when they use cash as compared to credit. I think this is true. For example, if you only have $20 bucks on you then you can’t spend $30. This isn’t the case when using a credit card.
• Avoid Fees & Interest: By spending cash, you eliminate the possibility that you’ll pay interest charges or credit card fees. And if interest and fees start to rack up, they can create a snowball of financial turmoil that’s hard to stop.
• Accepted Everywhere: I have yet to find a place that doesn’t accept cash. On the otherhand, there still are some places out there that don’t accept plastic. If you carry cash then you can be pretty sure you aren’t going to get turned away.
• Possible Discounts: Some places will give you a discount if you use cash instead of a card. Remember, it costs to process a credit or debit card transaction. If you are willing to pay cash then it might save you some money.

The Benefits of Using Credit Cards

• Security: There is no doubt using a credit card is safer than using cash. If you lose your cash it can’t be replaced. If your credit card is lost or stolen and it is used without your permission the most you can be held liable for is $50. Also, you have the ability to dispute a charge if a purchase goes wrong when using a credit card.
• Rewards: Credit cards that offer cash back, travel or other rewards can pay off, so long as you pay the balance off in full each month. Just putting everyday spending on a card can result in hundreds of dollars in cash back rewards each year.
• Better Tracking: When you use credit you can keep close tabs on how you spend your money. Managing your money is much easier because it’s done electronically. You don’t have to keep receipts and write down transactions because it’s done for you. Plus, if you use money management programs like Quicken or Mint.com you can easily export your transaction history and manage all your accounts in one place.
• Interest Free: If you pay your balance off each month then you are bascially getting an interest free loan for 20 to 30 days based on your billing cycle. This is about the only time you can borrow money from a bank with no intrest. Also, you can always take advantage of an offer that gives 0% for a longer time period like 12 months. This is ideal for a big purchase that you might need extra time to pay off.
• Purchase Protections and Waranties: Many credit cards come packed with purchase protections and waranties which safeguard your purchases. This extra security helps you in the event you purchase an item that ends up being damaged or has a defect. Each card works different so you have to check the terms of your agreement, but this type of protection can save you money.

Photo Credit: YIM Hafiz via Flickr