by Gordon Hamilton

Created on: June 16, 2009

The issue of when to pay cash and when to use a credit card is one which on occasion will be determined by circumstances outwith our control but more often than not we will have the option of using either. It is important, therefore, if we are to successfully to avoid such as debt problems further down the line, we know when it is a good idea - and a bad idea - to use each payment method.

The circumstances as to when we are forced to use a credit card as opposed to paying with cash will often be when the latter method of payment is not possible. This would be when we are making a purchase such as online or over the telephone. There are, however, a number of traditional retail outlets in present times which do insist upon credit card payment. This is purely a matter of security for the retail outlet as it prevents them knowing the risk of having cash on their premises. These circumstances are obviously non-negotiable and cash is clearly not an option.

We may of course use credit cards when we do have the choice to use cash simply as a security precaution of our own. There can be little doubt that carrying a credit card around with us is a lot safer than carrying cash, both since any thief or unscrupulous finder would have greater difficulty in using same and for the fact that we have a system of recourse if we lose a credit card where we have none should we lose cash. This is all fair and well but we must ensure that the credit card purchases made for this reason are only made for this reason and that the cash to cover same is available in our bank, or at the very least will be come the time of our next statement.

Credit cards are used very effectively by many people as a form of interest free credit, extending up to a period of five or six weeks. This is where they know that by making a purchase by their credit card, they will not be required to pay until their next statement is received. Particularly for larger purchases - or a number of smaller ones - this means that their money can remain in the bank, perhaps earning interest, in the interim. This is clearly a very prudent financial system.

The dangers, however, with credit cards is that we take this system too far and see the credit card as a means of buying that which we cannot afford at the time and deferring payment in this way. This is a rocky road to travel and can be the first step to major debt problems. If we are inclined to think in this way, we should strictly limit the use of our credit card and pay cash for purchases, in this way knowing that we can afford same.

It is therefore entirely possible to juggle paying by cash and by credit card very effectively if we are shrewd in a financial sense. We have to ensure, however, that we remain on top of our credit card usage and monitor it effectively if we are to avoid those long term problems and issues.

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