Benefits of paying cash

Of course you want to build credit.  You want a great credit score for those large purchases when you need a loan (i.e., car, home, boat).  With a better credit score, you are most likely going to get a better interest rate.  With this said, credit is not always the best solution for all your financial needs.

Credit cards are appealing because many of them provide perks.  These perks can be gift certificates, airfare miles, hotel points, and the list goes on.  On the flip side, credit cards typically have high interest rates and even sometimes annual fees.  Many people justify the high interest rates and annual fees with the perks, but we can be certain credit card companies are not providing the service as a charity.

If you are purchasing a high priced appliance or furniture, you may be tempted to use a credit card.  Occasionally, you can get 6 or 12 months 0% interest when you purchase a large appliance from Best Buy or furniture from the furniture store.  If you do not pay off the full amount within the 6 or 12 months, you will be slapped with a large amount of interest.  At the end of the day you may be paying $2,500 for an item that was only $1,800 depending on how fast you pay it off.

So, what is the alternative to using credit cards?  It is cash, plain and simple.  Purchasing items with cash is going to assure you that you are not paying fees or interest.  In some instances, you can even get a better deal purchasing an item with cash versus using a credit card.

There may be a time in your life when you do not have the cash on hand to purchase the item you are pursuing.  I would really think about whether you need the item now or if it can wait.  If you can wait for a few weeks or months until you have the cash for purchase, it may end up benefiting you in the long run.

Paying cash also helps you realize that you are spending money, as silly as this sounds, it is completely true.  When you go to a casino to play blackjack, the casino makes you play with chips.  The psychology of this is, you do not realize you are throwing away your money because chips don’t look like money.  Chips look like chips.  When you pay with cash, there is a visible exchange of money and this helps you realize money is being spent.  Studies have been done to show that people who use cash spend less money than those who pay with a credit card.

 

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