As experts debate whether or not we’re headed for another crushing recession, is now the time to go into more debt? Let’s talk about whether saving up for large purchases makes more sense than buying on credit.

No ‘One Size Fits All’ Answer

Unfortunately, there is no correct answer that applies to every situation. There are times when saving and paying cash makes sense. There are also times when a purchase becomes urgent and buying something on credit is the best solution.

The Benefits of Paying Cash

There are purchases you’ll make in your life that can wait until you’ve saved up enough cash to buy it outright. Paying with ‘all cash’ is a powerful bargaining tool you can use to get discounts on certain big purchase items. When making large purchases like a home, saving up extra cash is a great idea as well. The bigger your down payment, the smaller your mortgage. Also, it’s a great idea to have cash set aside for home improvements you’d like to make immediately. Long story short- it’s always a good idea to be growing your savings.

The Benefits of Using Credit

Despite what you might think, there are times when buying things with credit is the best option. An article written by Jim Probasco for explains, “There are, of course, times when it makes sense to go into debt. One of the most common reasons, mentioned above, is urgency. If an appliance fails, you need a replacement right away. So, if you don’t have sufficient savings to buy it outright, debt may be your best option. A pending price increase or special sales opportunity—even when it’s something that isn’t an emergency need—could also push you into a decision to charge the item. It’s important to make sure that, once interest is figured in, the savings of this financed purchase still amounts to more than the savings you would realize by waiting until you could pay cash.”

Exercise Caution

Think hard about what you’re willing to use credit for. Late fees, interest and over-limit fees can quickly erase any savings you get by purchasing something outright. Debt can become a crushing weight faster than you realize. If you’re going to use credit to make a large purchase, make sure you have a fool proof plan to pay it off as quickly as possible. Exercise caution when it comes to spending above your means. Financial responsibility is a skill that is crucial for everyone to learn.

If you’re unsure of whether or not the item you’re purchasing should be bought using credit or cash, ask yourself how quickly you need the item. If it’s something like a new television, you have time to save up for it. If it’s something like a broken AC unit in the middle of summer, you should purchase a new one immediately. Use your judgement to keep yourself out of debt as much as possible.

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