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Paper vs. Plastic: Cash vs. Credit Cards

// July 9th, 2009 // Money

It’s the interest that breaks your back.

It’s easy to get bogged down by debt especially when you’ve got an itchy trigger finger on spending and can’t resist making that bargain on a new pair of shoes, the trendy bag or giving in to the lure of that bright shiny new gadget.  You may be making that bargain now but if you’re using your credit card to pay for your new pretty toy, you’ll end up paying more than the original price tag.  A little common sense towards managing your finances can go a long way, especially with the uncertain economic climate.

Live Within Your Means – Just Cash It! Avoid bad credit by using cash instead of plastic.  The debt from high-interest credit cards is one of the leading causes of bad credit problems in the United States.  Credit card companies make a lot of money from the over $750 billion dollar debt and it all comes from the over 700 million credit cards currently in use.

Add 20 percent. Whenever you use your credit card to pay $100 dollars for that adorable little purse, $200 for a new iPod or even just a few dollars to indulge your Starbucks coffee addiction, remember that if you don’t pay the entire amount off by the time you get your credit statement, you’ll need to pay for the interest too.  For example, if you’re using a credit card with a 20 percent interest rate, you’re really paying approximately $120 for that bag, $240 for the iPod or adding just a couple of more dollars for the coffee.  You may shrug off a few dollars for the coffee but add them all together in the long run and you might have used the savings to pay for something else instead.

Good Consumer Debt vs. Bad Consumer Debt. Not all consumer debt is a bad idea.  Mortgages, car loans and student loans are considered good consumer debt.  These are considered investments and help your credit standing in the long run.  Of course, don’t borrow more than you can afford to pay, always research the best deals you can possibly get and the best way to deal with any debt is start ­paying it off. Credit card debt is an example of bad consumer debt as you end up using your card for easily consumable items such as groceries, take-out and vacations and then, with the interest rates, end up paying more than you should if you don’t pay off the balance right away.

Save Your Money From the Interest Bandits. Bottom line?  By keeping your credit card in your wallet and using your cash instead, you can save hundreds of dollars from the interest charges alone.  Every time you take out cash from your wallet, you help yourself keep track of your spending habits by the amount of money that’s left.  Seeing how many (or how few!) dollar bills and coins you have left can stop the Impulse Buy demon in its tracks.

Bye-bye Credit Card? Put down the scissors and back away from the plastic.  It is ideal to keep at least one credit card.  However, you should know how and when to use your card.  Shop around for the best deals and perks when it comes to credit cards but don’t let the fact that you have a credit card in your wallet allow you to run off and get the luxury items that will just end up adding more to your debt.  Use it correctly and you’ll go a long way in making sure your credit history remains in good standing.