[A]s credit card debt spirals out of control, some people have taken the initiative to use only cash for their purchases. They either don’t use or don’t own a credit card. They may cut up cards, close accounts and rely on their income as it comes in to pay bills. Is this a smart decision and can it really work?
What Cash-Only Means
When you use cash for everything, you only pay your bills after you’ve been paid your salary. If your income doesn’t cover everything, something doesn’t get paid. Cash-only may include checks and money orders, but it doesn’t include credit cards or charge accounts.
You must know your expenses and when they are due and how much income you have coming in and when. You must track all purchases and manage your budget to ensure you have enough money to keep you until the next payday.
Does It Work?
If you don’t have any credit, cash is king. You can’t buy something you don’t have money for. For people who have a difficult time saving money or living within their means, this may be the optimal solution to money woes.
On the other hand, there are times when credit is necessary. For many people, they can’t afford to pay cash for a vehicle or home. They need the flexibility that comes with a credit card or account. Another issue is you often need a credit history to be approved for larger credit purchases, such as a home.
The Middle Ground
If you are one of those people trying to live debt-free or become free of debt, using cash may be the best solution. Get in the habit of using cash even if it means you have to close your credit accounts. Once you have spending under control and you have changed your habits, you should consider opening at least one credit account to help you build positive credit.
To prevent future issues, you can make it a secured account or one with a low limit. Learn how to use it responsibly and avoid overspending. Becoming financially responsible doesn’t mean you never have credit; it means knowing how and when to use it while maintaining your positive credit rating.