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When Should You Use Credit Vs. When Should You Use Cash

When it comes to cash versus credit, people have some pretty strong opinions. Some find cash inconvenient, finding it to be a hassle, and unsafe to carry on them. Others don’t even have — or trust — a credit card to their name. But basic preferences aside, this decision can actually have a significant impact on your finances. And with holiday shopping looming, we’re going to break down the advantages and disadvantages of both.

When You Should Use Credit

You can pay off your balance in full each month.
As long as you’re a responsible user and don’t carry a balance from month to month, there’s no reason you can’t use your credit card for daily purchases. Be sure to research the best card for you, and be wary of annual fees and rewards that you’re not getting the full value for. Look into whether you’re taking full advantage of your rewards. And if you’re spending more than usual each month solely for the extra points, definitely reevaluate your habits.

You want extra fraud protection.
A big pro to credit cards is the protection they provide — like if someone gets their hands on your digits and goes on a retail bender, you won’t be responsible for those fraudulent charges. And in the event that your wallet is stolen, your cards can be quickly cancelled, but that cash is gone for good. With Digital Wallet, you can keep your credit cards on your phone so you don’t even need to have them with you. The best part is your actual card number isn’t shared with vendors so your information stays secure.

You need to build your credit.
Having strong credit is important whether you’re applying for a car or home loan, trying to land a job or even hoping to score a date. And in order to build up a history of responsible credit use, you need to, well, use your credit. If you’re trying to increase your credit score within a certain time-frame for a big purchase in the future (like a new home or car), as long as you’re keeping your capacity under 30% and paying your credit card on time every month, you should see a boosted score in a matter of no time. To keep track of your daily credit score for free, download our Mobile Banking App and stay on top of your number.

You’re investing in your future.
Sometimes you don’t have the funds on hand to make big purchases for your future, and credit may be the answer. For example, putting your Black Friday weekend shopping expenses on your West Community MasterCard for 0% APR* and creating a plan to pay the balance off throughout the 6 month promotion period may be a beneficial option.

You need an automated spending log.
Tracking your purchases is a great way to keep your spending in check, and this is made easy when you use a credit card by checking your credit card statement. And if you use Online Banking, you can always check in on your latest purchases, rather than wait for your monthly statement to arrive.

When You Should Use Cash

You have credit card debt.
You can’t make serious progress on your debt if you keep adding to it each month, so if you’re carrying a balance, your credit cards should be off-limits until you’re in the clear. And, even then, using cash or a debit card for at least six months before you start incorporating credit cards again to get a handle on your spending.

You struggle to stick to a budget.
You know how much you can comfortably spend each month to stay on track with your financial goals, but swiping a credit card makes it easy to ignore reality and keep on spending. If you find yourself falling into this trap, you might benefit from an all-cash diet. Whatever your weekly budget is, take out the funds in cash and put your credit cards in your sock drawer (but don’t close them because this hurts your Length of Credit). Once that cash is gone, you no longer have another way to spend.

You want to be more mindful about your spending.
If you think you spend more when you use your credit card instead of cash, it’s probably because you do. We are a lot more aware of spending paper money than electronic money. Without the emotional attachment associated with spending cash, the purchases can really pile up. But when you’re about to part with your last 20, you may decide you really don’t need another that $5 coffee.

The Takeaway

The smartest choice for your finances depends on your overall spending habits. If you trust yourself to pay off your balances each month — and have the flawless credit history to back it up — then go ahead and charge it. There’s no reason why you can’t use credit for everything and take advantage of the rewards and added security benefits.

If you would like to apply for a credit card or are looking for more information on what the credit union offers, click here.

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