Saving for a down payment, or any large purchase, requires a sensible approach to your spending. A new trend in debt management has people paying for everything – from bills to their daily coffee – in cash. Should you follow a cash-only budget? Here are some insights to keep in mind.


What is cash-only debt management?

This system is fairly simple. Each month, you divide up your budget into smaller mini-budgets. Start with your set-in-stone bills like your housing, car payment, student loans and cell phone bill, then come up with set budgets for other categories like groceries, gas, entertainment, dining out and more. Divvy up the cash into envelopes for each category and stick within each mini-budget without going over.

The pros of cash-only debt management

The main advantage of this system is that you’ll be less likely to spend more than you have, which is easy to do when you pay using a credit card.

Even just a few days of using cash may make you more aware of frivolous spending habits. Those coffee runs may seem less important when you realize they add up to $20 a week.

Budgeting is never fun, but by staying extra frugal, you may find that you have enough money at the end of the month to treat yourself to or tickets to a Minnesota Wild game.

The cons of cash-only debt management

Having good credit is important for many aspects of your life including, but not limited to, buying a home. By paying for everything in cash, you won’t be able to build your credit very quickly.

It can also be inconvenient to pay large bills, like your student loans, in cash – and some service providers may not accept cash payment at all.

If you use your credit cards properly and pay them off immediately, they can be a great way to earn rewards for your spending. On a cash-only budget, you won’t be able to collect those miles or hotel points.

Is a hybrid approach the solution?

There may be a way to stay on budget and understand your spending better without paying for everything in cash.

Consider paying your set-in-stone bills with a credit card, then keep enough in your checking account to automatically pay off your credit card bill each month.

For all the rest of your spending – from groceries and gas to date nights  – set up and stick to those cash budgets.

That way, you can earn rewards and build better credit while ensuring that you don’t spend extra on anything you don’t really need.

Saving up for a down payment?

Whether you’re ready to buy a home or are in the process of saving up for a down payment, talking with a mortgage expert can help set you up for a successful home purchase. Reach out today to get the process started.

Key takeaways:

  • Paying for everything in cash may help you stay on budget and minimize your debt
  • A cash-only approach may make it difficult to build your credit
  • By adopting a hybrid approach where you keep cash on hand for discretionary purchases only, you can stay on budget and build a strong financial future