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Should you Pay in Cash instead of credit Card?

03 May
Should you Pay in Cash instead of credit Card?

In this article i will focus on just one technique to improve your finances by  taking a close look at how making purchases with cash can contribute to your ability to budget, save and invest.

A Plastic Affair

 With the proliferation of plastic  alternatives to hard currency, some people consider carrying cash a  throwback.
To be fair, plastic is much sexier than a piece of colored  paper with a dead president staring vaguely into the distance. Some banks even  allow you to customize the graphics that appear on the credit  card/debit card or choose from a range  of designs and colors the company is marketing.
There  is also the security advantage with debit and credit cards. Debit cards are  protected by your personal identification number (PIN) and credit cards by your  signature (and for some cards, a PIN number too). Cash is only protected by your  ability to defend it should someone else want to take it from you.
Moreover, nowadays cards are as widely accepted as cash shops. And yet, from a personal  finance view, cash is almost always the better choice for making a purchase.  Here’s why:
1. Overpaying

One of the drawbacks of credit and debit cards  is that they encourage you to spend more than you intend to by giving you easy  access to more capital. With cash, spending more than you intended requires  going to a bank or ATM to get more and then going back to the store to complete  the purchase. For most people, this provides time to reconsider whether their  budgets can handle any extra strain.
Generally speaking, only carrying  the cash you are prepared to pay for a given product will prevent you from  buying the next level up and paying for features you don’t need. This works for  small-scale purchases, but buying a computer or a car can involve large amounts  of cash that probably shouldn’t be carried around. If a check  can’t be used, a debit card is better  than a credit card because you are spending money you have rather than money you  don’t.

2. Over-Shopping
Just as  cards encourage overpaying for one item, they also allow you to buy more items  than you mean to. Stores are set up to make products appealing in order to  persuade shoppers to buy more. Sometimes a shopping list isn’t enough to protect  you from impulse buys.

According to the  Dunn & Bradstreet study found that people spend 12-18% more when using credit  cards than when using cash. And McDonald’s found that the average transaction  rose from $4.50 to $7 when customers used plastic instead of cash.
So  what can you do to avoid this? Only carrying enough cash to buy the things on  your list can limit the damage. This is  the best way to keep shopping within your budget. If you are motivated, you  will find discounts or cheaper alternatives to your regular brands to make that  cash go further and maybe earn yourself a luxury item.
3. Cash Vs. Credit Cards
 Cash in this article, is strictly limited to money you have already earned and is sitting  there for you to use. Using your Visa to take a cash  advance and then carrying the cash with you will not solve the essential  problem of using high-interest debt to cover your expenses.
Cash has one  very clear advantage over using a credit card: If you buy something on your  credit card and end up carrying a balance, or only make the minimum payment each  month, you will incur interest at a rate of 20% or more of your purchase (which  can have you paying Tsh.20,000/- or more for every Tshs.100,000/-  you spend). If you save up enough  cash for the same purchase, you are giving yourself the equivalent of a 20%  discount by not using your card. Before  you even sign up for a card, make sure you know what you’re getting into.
4. Cash Vs. Debit Cards
If this article were only  dealing with cash as a better alternative to credit cards, no one would dispute  it. In contrast, debit cards seem to enjoy a protected status despite the  overkill on ATM fees and foreign ATM fees. Forgetting the fees, a debit card’s  main failure is that is trivializes purchases. Being a square of plastic, it is  hard to tell how much of your money is flowing through your debit card.
For most people it becomes a matter of 10,000 shillings here, 100,000 Shillings there, another 40,000  over here and so on until  they give up keeping track of how much has been spent in a day – let alone a  month. Then it’s a shock to their systems when the monthly statement comes  and it’s far too late to do any good. With cash, you can see the damage as it is  done and hopefully curtail your spending before it gets out of  control.
The Bottom Line Using a credit or debit card  offers more security than cash in most cases. For large purchases, carrying cash  is often not an option and writing a check or getting a bank  draft  may be more trouble than it is worth for some. Furthermore, if a debit  card is used responsibly, it is an ideal replacement for cash. A credit card can  also be a convenient tool, but it’s only a fair substitute for cash when the  balance is paid in full at the end of each month. Otherwise, your ultimate  reward for paying with your credit card will be paying off an even bigger  debt.
If you struggle to avoid overspending, shopping with cash is one  way to stick to your budget and limit impulsive spending.
For more Saving and Budgeting Tips check Out My article here: http://monfinance.com/2012/03/23/finance-tip-budget/

 

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