If you're drowning in debt and you want to get out of the situation as quickly as possible, your best option might be to go all cash for the time being. Whether in 2015 or any other year for that matter, cash will always remain king especially if you're dealing with debt.
If you've been used to using plastic for years, however, this move may be difficult. Going cash is also not always the best option for everyone. It pays to consider the pros and cons of the situation first before jumping on board.
So when is it exactly right to ditch your credit card and go cash? Below are key factors to consider before finalizing your decision:
Is the lifestyle for you?
One of the biggest hurdles you will face when deciding to go cash is whether this plan is right for you or not. Again, going all cash is not going to be an easy feat but it's never impossible to get used to. In fact some experts such as Eric Tyson and Dave Ramsey have said that living on cash alone is actually more practical and simpler than when you use credit cards. As soon as you get the handle on this kind of lifestyle, you may be surprised at the amount of savings you'll end up with along the way.
Before going cash-based though, make sure to consider important factors such as the amount of money that comes in and out every month and the amount of cash you need per month among other things.
Do you have a debit card handy?
If you think that going cash all out is a major step you cannot get into at the moment, you can use a debit card instead as an intermediate stepping stone. With a debit, you get to enjoy the same convenience and benefits a credit card offers. Even better is that you don't spend money you don't have with a debit card.
But it's not just all pros with debit cards. It also has its fair share of downsides. When using debit cards, for instance, you need to be constantly aware of the amount of cash left in your account especially if you're not the only using it.
Should you still have a credit card handy?
No matter what experts say about credit cards, the financial tool still does have its own advantages. Convenience especially during emergencies tops the list. If you're determined on going all cash, it doesn't have to be strictly just cash. Sometimes, you need have a credit card handy for special circumstances.
According to some experts, there are two exceptions when using credit cards is reasonable. One is if you're pumping gas because credit card is certainly more convenient. Another is if you're going on a vacation. It's just not practical to carry a lot of cash with you when you're out gallivanting around the world. This is the best time to take out that plastic card for convenience and security’s sake.
Is your credit score going to be affected?
If and when you decide to go all cash, remember that it may have a significant impact on your credit rating. When credit agencies compile your financial information and they don't have a credit card history to consider, this may lower your credit score or you may even discover that you don't have any FICO score. This is because card companies close down inactive accounts eventually.
To avoid this from happening, what you can do is pay off all your balances. Once it is down to zero, you can pick a card and use it once or twice every two to four months to retain your credit score.
