When faced with this question, sadly most people go for the card. I love the excuses they offer me for why they use credit cards instead of cash. In fact, let’s quickly look at some of the more popular excuses:
1. Convenience. Credit cards are more convenient to carry than cash. There are even television commercials that depict how using cash slows down the lines while shopping. (That’s because most clerks aren’t smart enough to count change!) My response to this excuse: BULL. Cash doesn’t take up much more room in your pocket or purse. And it’s faster and easier to use in nearly every transaction. Don’t be a sucker.
2. Safety. People think carrying cash makes them more susceptible to getting mugged. BULL. If a mugger sticks a gun in my face, I don’t want to have to say, “I don’t have any money, do you take MasterCard or Visa? American Express? Discover?” I want to hand him a wad of cash and have him smile, say, “That was easy!” and be on his way.
3. Expense tracking. It’s easier to track your expenses when you use a credit card because you get a statement every month. BULL. The fact is that very few actually track their expenses . . . that’s basically part of everyone’s financial problem to begin with! As for being unable to track expenses when you use cash, that’s what receipts are for.
4. Cash back. BULL BULL BULL. Yes you get cash back when they use your credit card in some cases. But do the math. Spend $10,000 on your credit card and you will get back 1%. That’s $100. The interest on the $10K is $100 only three weeks into your deal. If you believe you are smart trying to get cash back, you are instead an idiot. Get a clue . . . buy a clue. Just don’t put it on your credit card!
5. Airline miles. I get free trips! BULL. Tried this one? Good luck. If you are willing to fly middle of the week, middle seat, middle of the night with 4 connections, this will work great for you. I’m not willing.
I am not anti-credit card. I am anti-credit card abuse, misuse and overuse. And one of the best ways to avoid credit card problems is by carrying cash. When the cash is gone, you’re done. Easy plan for managing your money: No money-no shoppey. So carry cash and keep the cards for what they were intended for: the convenience of use when traveling for hotels and rental cars – not a candy bar at the convenience store.
Why don’t people have cash in their pockets or purses any more? I love a pocket full of bills. I even like my big ol’ jar of change that sits in my closet. I like the way it makes me feel. Don’t start in on me about how my self-worth shouldn’t be tied to cash – it isn’t. I grew up without much money in my family, and now I actually enjoy how a wad of cash in my pocket makes me feel. Plus, I’ve learned that cash in my pocket is smart from a financial perspective. Yes, cash is smarter than credit cards and not just because of the fees and interest rates and impact on your credit future. It’s smart for lots of reasons, but here is the best reason I can think of to use cash instead of a credit card.
When I use cash to buy something, I feel a sense of loss. In fact, I created that loss by using cash. My wad of cash is now smaller as a result of using it to purchase an item. My pocket is a little emptier. I’m a little lighter. I have fewer items (bills and coins) than I did before I bought the item. In other words, I realize that I actually gave something up in order to get what I wanted. It was an exchange of items – my cash for their stuff. This is a positive impact that the use of a credit card cheats you of. It was a contract, an agreement brought to completion on the spot when the transaction took place and the exchange of cash was made.
When you use a credit card to buy something you don’t get any of that. Nothing about you changes. Your credit card is the same after they swipe it as before they swipe it. You aren’t lighter as the card weighs the same whether it’s never used or used a hundred times a day. You don’t have less after you use your card, in fact, you have more. You didn’t exchange your stuff for their stuff as you got your card back and you got the stuff. You feel like you got something for nothing. And the transaction is not complete, the contract is not fulfilled all because the use of a credit card is a ‘promise to pay’ – it is not payment. At least not as far as you are concerned.
Your first response to my statement is probably something like, “yeah, until the bill shows up.” Again, I say BULL. Few people bother with their statements or care that much that their debt in racking up until it’s damn near to late to fix it or they hit their credit card limit. Don’t give me “when the bill shows up” argument. Plus, many people pay their credit card statements as automatic payments through their online banking and don’t even look at their statements and can’t even tell you how much they owe. Most can’t even tell you what they bought this month on their card. Those are the facts.
Okay, you get it. No need to beat a dead horse on this one. Carry cash and keep your credit card to reserve your hotel room on your next vacation!
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“This post was originally published for my weekly column at DebtKid.com. You can find the original post here.”
I actually think using credit cards is much more convenient. It’s not bull. I don’t have to go to the cash machine as much. I can download my transactions into Quicken, and it is easy to associate the proper expense account with each credit card transaction. Tracking my cash purchases is far more tedious. In fact, I don’t even try. I just track “Cash Expenses” as one category and try to use cash as little as possible (the added benefit is that my wallet is much thinner, since I can carry less cash). I also use my credit cards to pay utilities bills when possible. I love all the credit card points that I get (I usually get Amazon gift cards and buy books, my weakness). I of course pay off my bill every month, so I’m not just rationalizing the use of credit cards.
For most people, I think you’re right on as usual. But for this subject there are exceptions. We spend between $15-20K every month on credit cards for business and personal use and never pay a cent in interest. In the mean time we use the points toward things that save us money – savings to the tune of about $3750/year. That’s savings that cash wouldn’t give us back.
The key is that we manage our debt – in essence so that we have none at all. We are simply using what we find to be the most convenient and beneficial way to spend our moneys and, for us, that is often a credit card.
Dear Larry:
My question to you is do you feel the same way about Debit Cards? My problem with them is I tend to forget to deduct it from my checkbook.
I love the idea of using cash. When purchasing something though the mail or online though, do I use my debit card or purchase a money order?
Thanks
Tara Sheeley
When you run out of cash, you are only broke until YOU get some more cash. You can sell blood and get some cash.
When you run out of credit you are screwed until SOMEONE gives you some more. They wont even take blood for more credit.
A few things.
1. After having been deeply in debt we are now out of debt, with the exception of a car payment which is about 7% of our monthly income.
2. We use credit cards to pay for things and get points / cash back, and pay the bill off when it comes due.
3. Using credit helps your credit rating in the event that you actually need to borrow money; i.e. home loan, car loan, etc.
4. For many things, including small purchases we use cash. Cash is king.
5. We have about $4,000 in cash available immediately, no bank withdrawal required, as well as cash in the bank.
Thanks for your help in the past. We loved watching your TV show!
Paul
I agree. I keep credit card use to a minimum but do use a debit card. I find that I can sometimes walk out of a store after making a purchase with the debit card and not be able to remember how much I spent.
When I deal in cash, which is what I do when I feel like my spending is a bit out of control for my comfort level, I can tell you to the penny how much I spent.
I also use the ol’ write it down method. I used to use a small spiral notebook or checkbook register. Now I use the notes app on my phone to keep track.
I too love the feeling of having cash in my wallet. Or in my pants pocket. Even the feel of a couple coins jingling around in there cheers me up.
Responses to questions: Okay folks, the “convenience” issue – Cash is just as convenient, I can’t go 100 feet it seems without an ATM to trip over so accessing the cash in my account doesn’t take much time. Since most people “conveniently” use their cards way past the point where it makes sense to do so – cash is better since it creates a sense of loss that never occurs with plastic.
Yes, this is primarily for the bulk of society. If you are disciplined enough to use your card responsibly and pay it off monthly then much of this article isn’t for you. However, you are in the EXTREME minority.
Debit cards; it’s about responsible use. If you are a responsible user of plastic whether cash or credit, I’m good with it. If you aren’t, debit cards are much better than credit. Again – it’s the sense of loss that I talked about in the article.
Tara – I liked to buy online and always say use a credit/debit card when you do so you have some recourse if things go wrong.
True again Larry, this is all about responsibility for your finances, or actions. If you’re using your credit and not letting it use you: Then go ahead! Take that trip, get that bonus!
But if your ‘net worth’ is held in revolving lines of credit, then having the ‘loss’ as Larry puts it is a little wake up reminder every time you make a transaction. I’ve been whittling myself out of the hole every day and switching to that philosophy is really the only way to help me out of bad habits.
One thing that I do even with my Debit card is to use it as a credit card. It costs me nothing, allows for a touch of extra security and forces me to have a signed receipt (in most cases). I am ‘signing my life away’ every time…
And and as far as reading statements go, I’m sure most will just go sure, here’s the amount, even confirm it and If you don’t see anything out of the norm… done. I’m fairly good about tracking my own but not long ago somewhere buried on page something or other was a line about raising my rate. Guess what. Missed it. My good credit and payment history didn’t do me any good.
And by the way, if you’re cash ever gets stolen or lost it’s gone. If your cards get lost or stolen – your money may all be gone… and the headaches!
Larry:
I am VERY careful when I spend money, and mostly spend cash. However, on the occasions that I use plastic (debit or credit) I will consistently spend 10-20% more EVEN THOUGH I KNOW THAT I’M DOING IT!!!
It is more convenient to use plastic instead of carrying a lot of cash, and the mental attitude is that “I know that I’m overspending, but it is easier to get it now than going and getting more cash.
THAT is the main reason that I normally spend cash. When you are handing over cash, you think twice whether what you are buying is REALLY necessary or even a good buy.
BEWARE!!! Nobody is tighter than I am, and if I get sucked into overspending with plastic, ANYBODY CAN.
That is the reason for switching everybody to plastic instead of cash.
Lawrence Underwood
I challenge any of you to get through my checkout line with cash or credit, and prove to me that credit is faster. I can count change so fast it will make your head spin.
(And please stop handing me your credit card with your thumb and forefinger, while your other three fingers are wrapped a round a wad of snotty tissue. People like you are the reason I use gallons of hand sanitizer and keep all my vaccinations up.)
Larry, I got rid of ALL credit cards about 8 years ago after I used them to live on while my then business was going in the dumper. WORST, WORST thing I EVER did. Should have folded my tent and took my lumps back then.
Now I only use debit cards. Makes it a HUGE pain in the ass to rent a car or get a hotel room because the entire bill comes right out of your account… but you know what?… That’s the price you pay for being a dumbass!
Learning hurts… just make sure you don’t do it again.
Really excellent blog, Wingman!
Personal responsibility means being able to manage your own credit card. Yes, I do enjoy flying for free because of the points I rack up.
So I’ll put things on the credit card, like groceries, get double the points and pay it off at the end of each month. I live debt-free, have for years, and find that credit cards aren’t evil if you use them responsibly. The moment you can’t pay the balance in full–time to ditch the card.
I also ask merchants if they’ll give a discount for cash–if they do, I’ll pay cash.
I never spend cash and when I have some I feel like its fake money and spend it as fast as I can to get rid of it because it’s annoying to carry around. If I go out for a night w/ a hundred and come back with nothing where did it go? Did I spend it? Lose it? I’ve often found 20’s in pockets or purses months later.
Point being, credit cards help me keep track of everything I spend and where I spend it. I can look at the statement at month end and see where my money is going so I know what areas I need to cut back on the next month. And I DO like the cash back and airline miles. Contrary to what you say above it’s not bull and I get about $1200 a year back. Just pay your cards off in full every month. It’s the vendors who you purchase things from that are paying the 3% transaction fees to fund the cash back rewards.
Bottom line is that if you cant afford it now, don’t buy it. Whether you are spending cash or credit shouldn’t matter.
I may fall into the extreme category. I began using a credit card in the mid 90’s and paid it off when the first bill came due. I have continued this philosophy ever since. Growing up poor made me appreciate the value of money. I get sick at the idea of late fees, and interest payments. I love not having to drive to the bank and get cash ( think of all the gas money I have saved over the years). I have never used an ATM. Cards are way more convenient, and the rewards points fund my Christmas gift purchases every year. Although my work contributes to my pension fund, I also contribute an additional 12% of my income to a separate 457 plan. I paid off my house in 3 years, turned it into a rent house and now someone else is making the mortgage payment on my bigger, newer home. I paid off both of my cars early and feel that paying a few hundred dollars a year in maint. is cheaper than making new car payments. That savings has allowed me to purchase the 2 carot diamond ring my wife always wanted. I just wish more people would have the patience to build up their nest egg before buying everything credit will allow.