When to pay cash and when to use a credit card

Consumers might be better off if credit cards had the equivalent of a surgeon general's warning on it; "Warning: Use of Credit Cards may be dangerous to your financial health potentially leading to financial peonage, and bankruptcy". Instead of the warning being by the surgeon general it might be by the federal reserve chairman. The idea here is credit cards are to be used with caution.

There are several reasons why a credit card can be useful however. Since modern economies are very dependent on credit as a source of exchange, it is somewhat undeniable that credit is a financial reality. Credit cards can also protect spenders through credit dispute mechanisms and credit history statements. This financial reality can necessitate the use of credit cards in addition to the following:

• Using credit cards effectively helps build credit ratings
• Bridge financial gaps between paychecks
• Make possible a beneficial opportunity that might not have been available otherwise.

Cash is useful too, and although it is quickly becoming less and less necessary to use cash, it still can be helpful to use cash instead of credit. Moreover, although credit cards are widely accepted and cash is not always necessary, there are specific benefits associated with using cash. Some of those benefits are listed below.

• It doesn't have to be paid back unless it's from a loan.
• Cash spending can keep one on top of a budget by only spending what one has
• It's harder to trace purchases if you like privacy.
• Cash looks good, it's creative, feels nice and is less uniform than plastic. It has aesthetic appeal.

So when should one use cash and when credit? how to distinguish? The concept of a monthly time line can be useful here. By planning a monthly budget one can decide which money will be used for building and maintaining credit and which money might be used to keep one on budget.

Of course not everyone needs to use cash because more advanced budgeters have self-control. In this instance, one may not use cash at all and may even dive into the realm of micro-budgeting. An example of Micro-Budgeting is when one finds a credit card that matches his/her greatest expense to a credit card that provides rewards and incentives for those expenses i.e. airline miles, cash back, discounts, gas rebates etc. This will inevitably lower the cost for that expense making the credit card advantageous if the expense is a necessity and within budget.

The decision of how to fine tune one's use of cash and credit card is up to the individual. Each individual has different spending habits, needs, expectations etc. regarding the use of cash and credit. By considering the above concepts in mind, one may be better navigate the pros and cons of spending with cash and credit cards.