Although many payment choices come down to personal preference for certain types of purchases, it’s better to make a conscious choice. Ask yourself a few questions about the payment and funding method:

Do I have enough cash to cover this?

Cash is real and immediate. The term “cash” includes checks and debit cards. When you use cash for purchases, there are no approvals required or interest charged. But when it comes to paying for big-ticket items like cars, houses, computers, and college tuition, few people have enough funds on hand to pay in cash.

Will I have the cash soon?

Using a credit card can give you extra time before you have to pay for what you purchase, though this is not true for all cards as some charge interest immediately. The risk in using credit is that it can be easy to purchase more than you can pay off each month. If you run up a high credit card balances, the interest can start adding up and your debt start increasing.

 Tip 

Financing a newer, well-maintained car may be more affordable than buying a cheaper, older car in the long run.

What other funding options do I have?

Loans and lines of credit can be useful when you have an opportunity to purchase a big-ticket item that will benefit you for years to come. Here are some situations to consider using credit:

  • Buying a home – By buying a home with a mortgage, a portion of every monthly payment goes towards the principal, or amount borrowed and interest, and builds equity in your home. As your equity grows, you can become eligible to borrow from your home equity to make home improvements or finance other needs.
  • Purchasing a car – Auto financing can help you purchase a new or used car.

Knowing what type of funding to use for each situation can help you stay on the road to financial success.

Q:
All credit cards are interest-free if you pay off the balance every month, regardless of the type of credit card.

Next Question

Skip

How to Build for the Future

About cash and credit

Empower yourself with financial knowledge

We’re committed to your financial success. Here you’ll find a wide range of helpful information, interactive tools, practical strategies, and more — all designed to help you increase your financial literacy and reach your financial goals.

My Financial Guide

Products to Consider