Saving Every Day - Cashing In: When it's smarter to use cash
It's the American Way. We dig into our wallets and hand over our credit card to pay for dinner out, shoes or doctor appointments. The use of credit cards is so prevalent that we don't hesitate using them to purchase such small items as a coffee. Cash seems rather obsolete. So, are those who use cash instead of credit just behind the times? Or, is there something they know that we don't?
Believe it or not, there are times when it's financially advisable to use cash rather than credit. The consumer credit counselors at ClearPoint Credit Counseling Solutions share some of those circumstances:
- Use cash when you are having trouble following a household budget.
Plan weekly for each variable spending category (those that aren't paid online or by mail such as food, gasoline, and parking). Place cash in envelopes for each expense, then dole it out when needed. You'll quickly learn money management skills. After you've emptied an envelope, don't spend any more in that category until the following month. This practice is called the "envelope method" of budgeting. Little extras-a magazine, gum or soda-are less tempting when you need to buy gas to get you to work next week.
- Use of cash helps people avoid compulsive spending.
If you're at risk for this behavior, using cash is very helpful. We're all more aware of our spending when we actually see our cash leave our wallets. That recognition encourages us to distinguish between "wants" and "needs." Spending on wants feels like a waste compared to spending on groceries, child care, or an oil change.
- Use cash when it enables you to realize a savings on the cost of a commodity. For example, buying gas, or buying groceries for a large family at a bulk retailer. Some retailers will offer customers who pay with cash a discount.
- Use cash if you tend to carry a balance on your credit cards. Remember the real cost of buying things on credit-you'll pay finance charges and potentially late and over-limit fees as well. A large-screen LCD you buy on credit for $1,600 will cost you more than $2,000 if you make only minimum payments for 2 years and 9 months at 18.9% interest.
- If you're close to maxing out on your credit cards, use cash to avoid over-limit fees. By paying for that last $20 of merchandise in cash, you could save $35-$40 in over-limit fees.
- If you're a victim of identity theft working to straighten out your accounts, consider using cash temporarily. In the same vein, use cash if you're worried about becoming a victim of identity theft. There is no identifying information on bills or coins that can be linked or tracked back to the spender. Remaining anonymous helps protect your identity.
- If you're on a debt management program with a credit counseling service such as ClearPoint, you will be required to forgo your use of credit card while paying off your outstanding debt. Using cash is the only alternative.
- If you would like to become a better shopper, use cash.
With limited amounts to spend in each category, you'll be motivated to find the best deals to get more for your money. Comparison-shopping, cutting coupons, looking for rebates or sales are skills you can cultivate.
- Carry a small amount of cash with you at all times. Eventually you'll find yourself at a small business that doesn't accept credit.
At some restaurants, patrons are shocked with they place their credit cards on the bill tray only to be told, "Sorry, we only accept cash." Having cash on hand will prevent some very embarrassing moments.
- Use cash if you need to break the never-ending cycle of credit card debt. For starters, you won't be adding to your debt load. If cut up or freeze your cards (it really is a strategy!) and you can't access credit, you be prevented from spending any more money than you actually have.
ClearPoint offers no-cost budget and credit counseling from NFCC-certified Financial Specialists. To schedule an appointment, call 877.422.9045 or start your session immediately online.
