This is a subject near and dear to my heart, and I’ve talked about it before, but I think it bears repeating.
I have a tremendous amount of respect for financial advisors like Dave Ramsey who have practical advice for people in dire financial straits. Truly, my admiration for them is vast and this is not about me saying “he’s wrong” or anything like that.
Nevertheless, I submit to you that any “cash only” plan for living is not only limiting, it potentially decreases how much money you have.
Let’s be clear on this, now: If you are too irresponsible to use credit wisely, then by all means go cash-only. I understand that that’s the only way some people can get back on track. I even agree that it’s an ideal solution in those cases. All I’m saying is that I personally think more people should view such a regimen as a means to an end rather than an end unto itself.
If your financial wellness is badly derailed, going cash-only is a great way to get back on track. Absolutely.
If your financial wellness isn’t limping along or otherwise in jeopardy, there is no reason not to judiciously utilize a credit card, or a mortgage, or a “buy now, pay later” credit line when making a large purchase.
Granted, this requires some discipline and planning, on your part. If it seems too hard or too scary, don’t do it. But if you want to maximize every dollar, start thinking about some of these things.
Credit cards. The post I referenced above gives numerous examples of why credit cards can be useful. It simplifies bookkeeping, many cards give bonuses of cash or airline miles or other goodies, and it’s good for your credit rating to have a long-standing credit card which you regularly use and pay off each month. That’s all aside from the fact that if you go out to make a large purchase with a credit card, you don’t lose any money if your purse is stolen. Plus, your credit card probably gives you extra warranty coverage as a bonus.
Mortgages. Again, this isn’t a rallying cry to borrow to the hilt. But the conventional wisdom about paying off your house as quickly as possible? Consider sitting down with a tax professional before you pursue such a plan. Depending on your income and the size of your mortgage, the tax benefits may outweigh the drawbacks of the interest you pay. (Please note: I’m not a financial planner or a tax specialist. Which is why I suggest you talk to someone who is.)
Interest-free credit lines. If you buy that new washer/dryer or sofa from a place that will let you finance it for a year with no interest, paying in cash is great. Taking their offer and buying a CD with the money with which you’ll later pay the debt off is better, though. That’s simple math, provided you don’t deviate from the plan.
Credit is not inherently evil. (I feel like I’ve been sent here from the NRA. “Guns don’t kill people! People kill people!”) If you can live credit-free, chances are excellent you can also live well—and with a few added benefits, not to mention a little bit of extra money—with the judicious use of credit.