How do you know if credit cards or Afterpay are good for your finances?

Are credit cards and Afterpay Touch Group Ltd (ASX:APT) good for your finances?

a woman

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Do you know if Afterpay Touch Group Ltd (ASX: APT) or credit cards are good for your finances?

For a lot of people that use Afterpay or credit cards, they likely aren't good for your personal finances. Why not just buy the item or service with cash instead?

There's no doubting the fact that Afterpay and credit cards can be a way of improving your cashflow. Admittedly it's very useful to be able to delay paying something for a few weeks. The question is, what are you doing with those extra weeks? Are you holding the cash in a savings account and generating (a small amount of) additional wealth?

I would guess probably not.

Sadly, there is a certain percentage of people that rack up an enormous amount of credit card debt. Many tens of thousands of dollars. If those people had just stuck to paying with cash then they wouldn't have gotten into negative territory.

Just because you can buy something with Afterpay or a credit card, doesn't make it any more affordable. It's best to only buy something that you were going to buy anyway.

If you pay off the entire credit card or Afterpay amount at the correct time then at least you won't be stung for late fees or high interest.

For the responsible users of credit cards it can mean rewards, better credit protection, benefits and perhaps insurance on items. However, that requires paying off the full credit card amount every month without fail. If you can't do that forever, then credit cards are not for you.

I prefer the idea of saving up for larger purchases in a savings account and earning interest along the way.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of AFTERPAY T FPO. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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