Let’s set the scene: you’re out for a day of shopping with your friends, the bags that are already slung over your arms and shoulders are starting to weigh you down big time. You need to take a rest – just a quick one – so you find a nearby bench to rest your loaded arms and tired feet.
That’s when you stop and look at yourself, and you notice just how many bags you have in your hands. That top you just bought – when are you ever going to actually wear that? But it was just so easy to buy – all you had to do was whip out that trusty credit card and give it a quick swipe and a John Hancock.
Snap back to reality: therein lies the problem with credit cards. They are so easy to use and spend more than you planned on spending with, but why would they exist if not to purchase things that you can’t pay for outright?
There are some instances where paying with a credit card is perfectly acceptable – and actually encouraged. Other cases (and some of them may surprise you) are more appropriate for cash payments. Let’s break some down, shall we?
Here’s a perfect example of an instance where it’s actually encouraged that you pay using a credit card or credit account.
Electronics can be large purchases, but not so large that they payments will be difficult or impossible to pay off on time. And most stores these days will offer 1 year of interest-free financing if you open a credit account directly through them. Then all you have to do is make sure you get your balance paid off before you are charged any interest.
Electronics are easy payments for a couple of different reasons. Chances are, you’ll be using whatever you’re buying quite frequently, otherwise, well, why would you buy it? Your payments will also likely be manageable when spread over the course of a year, so you won’t fall into any crazy debt by purchasing your new electronics on credit.
The next time you’re at a gas station, check to see if there is a difference in the price per gallon of gas offered for cash payments versus credit payments.
At many gas stations now, especially with fuel prices ever on the rise, station owners are giving cash payers an average of 10 cents off per gallon. It might not sound like much – but 10 cents adds up pretty quickly when you fuel up frequently.
Skip the additional credit card charges per gallon and pay before you pump with direct cash.
Online Purchases: Plastic
This should be a given, but paying with a credit card when making online purchases has a few different added benefits to it.
First of all, it’s much easier than sending a cash or check payment or paying cash on delivery for the item. With a credit card, your funds are instantly (and usually securely) transferred to the online merchant and your product ships right away as a result.
There’s more to it, though. If you run into any issues with the product that you’re ordering online, it’s fairly easy to communicate with your credit card company to either dispute a charge or completely block a merchant that either failed to send the item or the item arrives and is not as it was described.
It’s much more difficult to deal with a merchant directly to dispute a cash payment when you receive an item in a condition you weren’t expecting. Returns are also made much easier with a credit card – all the merchant has to do is transfer the money back to your card. It’s usually instant, so you won’t miss a penny.
Having a budget is one of the most important aspects in trying to save money. As already mentioned, it is becoming all too easy to reach into your wallet, pull out that piece of plastic and swipe it – and that, in turn, makes it too easy to exceed your budget.
Setting a grocery budget should be one of the easier financial tasks on your to-do list. A general rule of thumb: estimate how much your weekly groceries will cost you, budget an extra $20 or $25 just in case, and don’t let yourself exceed the total amount.
By having cash in hand at the grocery store, you’ll be more mindful of places you can save money and where you might be spending too much. You’ll find yourself much more aware of how much you’re really spending when you have to fork over the actual amount of cash that you have spent.
And by only allowing yourself so much cash for groceries, you’ll also have the added insurance of never exceeding your grocery budget.
Similarly to the electronics purchases, vacations are generally manageable sums of debt that can be paid off without much trouble (assuming, of course, you don’t take 3-week long lavish vacations to exotic countries or anything).
Plus, by spending a large sum like this on your personal credit card (versus a store’s), you’ll reap the benefits of your card’s rewards program. Maybe you’ll earn points to put toward airfare for your next vacation or maybe it’ll be cash back – whatever the reward is, you’ll earn a lot of it by paying for your vacation with your card.
If it’s points toward airfare or hotel stays, you can also redeem those rewards from previous vacations for the one you’re planning now and save yourself some money. It’s like a gift to yourself that just keeps on giving!
New Car: Paper
Now, now, don’t go running away just yet when you hear this one – there’s actually a ton of support out there for why it’s a good idea to pay for a new car in cash, in full.
For starters, it’s not impossible to save up for a new car. It might be tough to save $30,000 or $40,000 for your dream car, but it’s not impossible to save between $6,000-$10,000 for a new model of a lower profile car.
Paying for a new car with cash will really place a value on the aspects of the car that are truly important to you. You don’t need the flashy, show-off aspects that would cost you an extra $20,000 or the hood ornament that gives the impression that you have money when you actually don’t. All you need is a reliable, working car, and whatever other items you have on your “needs” list when it comes to your new ride.
Another thing to consider is that by paying credit on a car, you’re going to end up paying interest rates on an item that is going to depreciate in value over the years. You’ll end up paying way more than the car is actually worth and you won’t be able to sell it for nearly as much down the road.
So next time you’re out with the intention of buying something, anything, whatever it is you want – stop and think about whether it would be a wiser decision for you to pay with cash or credit based on these 6 items outlined here. Your decision might end up surprising you!
Dani is a writer for a company that provides a software for a credit card payment gateway to online merchants and is all too familiar with the world of online shopping. In today’s economy, she is always looking for places to save money – and these are some of her best tricks.