The perennially, often confusing question remains, when should you use a credit card and when you should use cash. A credit card offers the ease of not carrying any cash and thus is considered safe. However, cash would mean that you are debt-free and have no future liability.
Credit cards are a tempting proposition as high use opens a world of possibilities and rewards. But is it always the right option? Cash tends to limit your purchase as you never overstep your budget.
You can consider the following criterion while deciding which to use for your next purchase
- Convenience or Processing Fees Involved
If a payment that you wish to make via your card involves some convenience or processing fees, it is better to evaluate the worth. Are there any rewards or points you would earn? Will these points cover the additional fees and still be a profitable deal? If so, then a card is a better option. If not, it is better to make a cash payment as it would work out to be cheaper.
- Debt consolidation
If you are planning to use your card to settle other liabilities, remember to always check the interest rates and fees with your creditor. If the overall interest rate of your loans and credits exceeds that of the credit card, you can opt for balance transfer and pay the loan at once using your credit card. This way, you will only have to pay one instalment instead of many others.
- Credit Score
If you are already in trouble with a low credit score and are more likely to miss your payment cycle – opting for a credit card is a big NO. Increasing your credit would only lower your score and it’s best to limit your credit use. Improve your score by lowering your debt, pay off outstanding loans, regularize your cash flow cycle. Until then, try and make your payments through cash only.
- Urgent Expenses
If you are caught with an unexpected expense – sudden medical requirement, foreign exchange needs during travel, or any other unprecedented and unplanned liabilities, a credit card is a good option. It makes little sense to dilute your savings and investment to meet an immediate expense. Unless you have idle cash lying around, you should use your card. Besides, idle cash would mean that you are losing out on interest that you might earn on it. Hence, ensure that you invest your idle cash, and you can safely depend on your credit card for unexpected expenses.
- Rewards and Offers
Some credit cards offer rewards. For example – RBL Bank credit cards have a plethora of cards that you may choose from based on your expenditure style and the kind of rewards you would want. One of the best is YOUnique credit card, which gives you the liberty to build your own credit card.
While digital money and credit cards have become the norm in bigger cities, there are many places where cash would work instead of a credit card – especially in smaller towns and villages. You must decide, based on essential factors, which would suit you the best. A healthy combination of both would provide you with the necessary financial freedom and independence.
