Cash vs. Credit – Which is better?

Spending becomes such a habitual part of life that it can be easy to loose sight of your spending methods. However, in order to be financially responsible, it’s important to analyze your money patterns. This way, you can minimize over spending and find ways to save a little along the way.

Paying in cash and swiping a credit card initially solve the same problem by covering the cost of a product you would like to purchase. Yet, when you take the time to analyze the functions of cash and credit, you will realize there is a methodology to spending.

Cash is the most widely accepted form of money at brick and mortar stores and is a quick and convenient way to pay. But, be warned; cash can also be easily lost or stolen. Sadly, there is little chance you will find the twenty-dollar bill you dropped in the parking lot if someone has taken it. Once it’s gone, it’s gone for good.

That’s not the same story for credit cards on the other hand. Consumer protection laws help to mitigate the risks of someone fraudulently using your card. Many companies even have toll-free numbers and 24 hour service to deal with this.

In most cases you will not be liable for those purchases as long as you notify your provider immediately, and the most you can be liable for is $50, period.

The cash you carry in your pocket is also hard to track. A few dollars for lunch, a new shirt at the store, and a slurpee on the way home and poof it’s gone. When you make a purchase with a credit card you will receive an itemized statement every month to tell you exactly what you are spending. At a glance you can see how much you’re paying for lunch out and if you should consider a brown bag option a few times a week. Using a credit card might mean you are paying interest, but if you pay your full bill on time, you will not be charged interest or late fees. That’s the best plan. Payments made on time will also help to build a positive credit history and increase your credit score. A good credit score will help you when it’s time to finance a car, rent an apartment, and purchase insurance.

Additionally, many credit cards come with loyalty programs or other ways to earn points or cash when you use your card. For example, CVF Credit Union offers a VISA Signature Card with 1.25% cash back on all purchases. Now your credit card is paying you. What will you do with your cash back? Maybe save it!

While you may be thinking that one payment method may be better than the other, don’t be so quick to judge. Both cash and credit have their pros and cons, so the combination of the two is what balances your finances. Cash and credit have different functions, but if used in harmony, they can improve your credit score and improve your spending habits.