Cash or credit?

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. 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. The risk in using credit is that it can be easy to purchase more than you can pay off each month, allowing interest charges to accrue. If you run up high credit card balances, the interest can start adding up and your debt starts increasing.

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 may help build 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.