When is a Right Time to Use Credit? Cash or Credit

These oft-repeated words are a cashier's stock phrase. Yet the question packs a powerful punch in demanding a response that may have a significant impact on your budget.

When should you charge a purchase? The following guidelines may help you think about the best answer to this question.

1. Charge only when you must. If you can afford to pay cash, do so to avoid interest payments being added to the amount of the purchase. Emergencies like a flat tire, an unexpected medical bill, or a one-time expense can be paid by credit if you have no savings or cash on hand to cover it. But keep in mind you will have to pay interest charges and possible additional account fees if you do not pay the balance in full on the account statement when it arrives.
2. Charge when other options are unavailable. For example, if you don't have cash or a debit card, you may need to charge something. But get in the habit of using your bank's debit card, which deducts a purchase amount from your checking account. This can be done without fees when you don't use your PIN, but check with your bank to clarify their specific rules and regulations.
3. Charge against your home equity line of credit to get a tax deduction. Check with your mortgage institution for details or if you don't already have an equity credit line. Ask about the interest rate to be sure it will not exceed the benefit of a tax deduction.
4. Charge to get cash-back value or bonus points on your credit account. Sometimes it pays to purchase gas, groceries, and routine home maintenance supplies if you can pay them off in full when the statement comes in. Some credit companies offer cash back on a percentage basis, depending on the amount of the credit purchase. Fuel card companies offer gasoline discounts. The goal is not to get hooked into overusing your card in exchange for services you may not really need.
5. Charge for convenience. Rather than carrying cash around all day to the drugstore, grocery store, or video store, you may want to charge these and other purchases to avoid running out of cash, as long as you are able to pay the balance off each month rather than letting it accumulate. Paying at the pump for gasoline is especially handy when you're in a hurry or the weather is bad and you don't want to take those extra steps to pay inside or at the window.
6. Charge when you travel. Tracking expenses and checking each purchase can help you monitor expenditures and the family budget as well as give you a few extra weeks after you return to pay the bill. Travel checks work well, too, although the monthly credit card statement provides a helpful spending history.

While a majority of people have at least one credit card, don't fall into the trap of relying on credit too heavily. Debt is a heavy burden to carry, especially as it continues to accrue added interest charges.

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