Credit Series: Cash or Credit
Written by: Dr. Jo Turner, Professor, Family and Consumer Economics
To pay cash or use credit is a choice consumers have to make each time they buy. There are many good points and bad points to using credit.
Credit costs money. The consumer pays extra for items when buying because of finance charges. Credit can be bad also because the consumer is spending future income. They are living on money they expect to have in the future. What happens if they lose their job or become ill?
Another bad point to credit is that consumers may overspend. This is easy to do when bills don't come for a month.
Good points of credit include tracking spending is easier, getting goods and services before paying for them, and using credit to take care of emergencies. Another good point is credit eliminates the consumer's need to carry large amounts of cash.
Before deciding to use credit, consumers should figure out how much they can afford to repay each month. They must remember they are agreeing to pay back the money spent and must make monthly payments.
Before using credit consumers should ask themselves the following questions:
- Do I really need the item, or can it wait?
- What will be the extra cost of using credit?
- Is having it now worth the extra costs?
- Can I make the monthly payments as scheduled?
- Will I have to give up something else more important in order to use credit now? And,
- Will I be able to handle an emergency if one comes up?
Instead of using credit and making minimum monthly payments, consumers would be wise to save money and pay cash for items later. By saving money consumers can earn interest and will not have to pay finance charges.
