Tuesday, May 17, 2011

Cash or Credit?

Cash or credit? This is actually quite the topic these days...

Obviously we KNOW what Dave Ramsey would say :) And I love him for saying it...BUT I somewhat disagree.

Some dear friends of mine went through Financial Peace with me about 5 years ago. They did all the right steps...paid off their cards, cancelled them, and lived on cash. Well... a few years later they realized that their CREDIT SCORES had gone DOWN! Yep-when you cancel a card it does effect your credit. When you have cards open that are paid off it CAN hurt your credit. (It shows you at a high risk of going on a shopping spree)

So... what's a person to do? Live STRICTLY on cash or use credit some?

I have gone back and forth between all credit, all cash and somewhere in the middle. But have decided to do this:

I have ONE credit card that I use every month. I have set aside ONE bill that I pay EVERY MONTH on that card. It's not the amount that you have on your cards its using them and paying them off that helps your credit. By being on a system of charging one thing a month and paying it off at the end of the month I have actually brought my credit score up! I did lots of research before I realized how all of this works...

It's okay to use credit IF you can pay it off. And I don't necessarily think you have to pay the full balance every month, but you at least need to pay a bulk of it. It's okay to have some credit on the car (obviously though, you WILL pay interest)... but the main thing is to increase your credit score you need to use some credit every month.

Agree or disagree? What are your thoughts?

1 comment:

Lynda said...

I too break this cardinal rule of Dave's, but I do it with a card that gives me Disney rewards.
I have a husband and family that love Disneyland and living in So Cal we have annual passes. So I make purchases I've already planned and immediately deduct as I would a debit or monthly auto giving that comes off this card. Then WITHOUT FAIL I pay it off at the end of the month or there would be no benefit. Then I get my reward points that allow me to eat at nice places basically for free instead of packing in my own food or going for really cheap juck food. This has worked for several years I simply have to maintain discipline in paying it off.

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