1) Paying with cash means you get better terms. If you go to buy something and if the seller sees that you have cash they are often more inclined to offer a lower price because it means they are more likely to get paid. Instead if you get something on credit on an installment loan, sellers are a little less motivated, they’ll get their money later. This is key for larger purchases like cars or houses.
2) Debt is stressful. If you’re racking up a lot of credit card debt, you’re likely going to have it get in the way of your living a fuller, happier life. You to have to fork over a ton of your cash, time and mental energy to deal with the debt.
3) Cash empowers your decision making. When you’ve got cash in the bank you don’t worry about what debt plan you qualify for or whether you can get approved or if a credit check will hurt your credit score. You’re also better covered in the event of an emergency or in the event you want to take advantage of an investing opportunity. So you’re free to take more risks if you’ve got cash socked away. Basically your decision making is easier if you are using cash. Essentially cash means you can focus on what’s really important.
4) Cash gives you options. Cash buyers generally have more saved up. This means they have more choices. For example, if you have $25,000 socked away and had a child, you’d be able to pay for childcare rather than either you or your partner needing to say home to parent. Also, if you have a pile saved up, you don’t have to take a lot of crap from people. If you are in a job you don’t like or a town you don’t like, you can leave.
I disagree with points 1 and 2. Not always, but sometimes.
If you are a financially responsible person and you can get better terms on a short term (or even long term) loan, then debt does not have to be stressful and it can often get you better terms.
Along the same lines, point 4 is also false in it’s assumptions.
Take for example, my washer/dryer purchase from a few years ago. I had the cash saved for the purchase. I was prepared to go out and pay cash for a new HE washer, and matching dryer. As I shopped around I found the ones that I wanted on sale, and also on a 12 month 0% “same as cash” deal from a big name retailer. I bought them based on that – taking on debt. I had the cash on hand to pay it off at any time, so it wasn’t stressful. But I was making a little over 1% interest on that money in my money market account, while having to pay 0% interest as long as I paid it off within the 12 month deadline.
Many people can buy a car (even a used car) on less interest than they’d get by investing that money. As long as they have the cash set aside to pay off (or continue payments) on that vehicle if they should lose their jobs, it’s to their advantage to buy the car at the lower rate of interest and earn more on the savings/investments.
Too many people base these “top four reasons” types of posts on the extremes – people who will go into debt without any buffer, or who will pay 21% interest, or who don’t understand how to make their money work for them.
For people who DO understand how to manage their money, there are some good solid reasons to NOT use cash and to take advantage of the benefits that having good credit can give them.
Kara,
thanks for the note…that said I kind of think that your comments actually prove my point. It sounds like you were able to make better decisions because you had the option of paying cash. Unfortunately a lot of America doesn’t have that sort of option.
Thanks,
James