I wrote this post exactly one year ago. The message is the same and even more timely with the current economy.
I have hesitated writing this post for many months because I know that people have strong opinions on the subject of using credit cards. I believe that most of us would agree that having a credit card and carrying a high balance that you are unable to pay off is a bad thing. Some people believe that credit cards are okay, as long as you pay them in full every month. Some people, like Dave Ramsey, think they are bad, very bad.
I have to agree with Dave on this one. For several years we had a credit card that we used for all our purchases, and paid the balance in full each month. We thought we were really outsmarting the credit card company because we were earning cash back each year and paying no interest or annual fees. What we didn’t realize was that using that little piece of plastic was allowing us to overspend in almost every category in our budget. We were not in credit card debt, but we didn’t have much in our savings account either.
Two years ago we stopped using our credit card. At first I was apprehensive because the year before we had earned $400 cash back using our card. I felt like we were giving up free money. We decide to pay for all our purchases with cash. It only took one trip to the grocery store for me to realize the power of paying with the green stuff. I was almost in a panic walking down those aisles, knowing I only had a certain amount of cash in my wallet. I stuck to my list and didn’t even look at things I did not have written down. When I was using my credit card I wasn’t as concerned with the total amount. Certain months, when our bill was a little high we would tell ourselves that we needed to spend a little less next month, and we did, but we never got ahead.
Studies show that over 70% of people do not pay their credit card balance in full every month. Studies also show that people spend 12 to 18% more when paying with a credit card.
So, what were the results of ditching the credit card? We didn’t earn $400 in cash back this January. We did however pay off $11,000 in student loans increased our savings account balance by over 500% . We also paid cash for an almost new 15 passenger van, braces for our oldest child, and funded our retirement accounts last year.
We do have a debit card that we use to reserve hotel rooms, airline tickets and make purchases online. It has the exact same fraud protection as a credit card (I checked). We also get cash back for using our debit card. We don’t use it often but it is convenient when traveling or making purchases from home.
How about you? Do you use a credit card? Do you pay it off every month? Do you think you would spend less if you used cash?
This post is linking to Works for me Wednesday Frugal Edition.
Thanks for sharing this. Funnily enough, I wrote about credit cards today too. They don’t work for me either!
Thanks for the new spin on the credit card issue. It was interesting how you pointed out that even if you are paying it off every month, it can still be a problem.
This is exactly the situation we were in and the route we are now taking. We cancelled our cards 2 months ago. It is sooo scary knowing there’s no “bail out” if you overspend. The big plus is we’ve saved more in these last 2 months than we would have in 12 months had we been using credit cards.
Well done on paying off your student loan and mega-boosting your savings!
Thank you so much for writing this. I will apply this from now on. Your discription made it soooooo clear. It is amazing how it is a trap when you don’t even know. ((sigh)) This has been a bad month for car repairs. (((doubble sigh))) I really don’t want to be indebt at all. I want to find a solution and this is going to be one for sure.
Blessings and ((hugs)) my SSiC
In Him<
-Mary
Very sage advice. My credit card is such a ball and chain, and I know the cash back I’m earning is ridiculous compared to what it’s costing me. Even so, I panic a little at the thought of not having that line of credit available in case of an emergency. Good job paying off the loans!
Yup – I agree with you. Although I’ve never had a credit card – I don’t want one. Hubby got rid of his shortly after we got married – and we have done very well for ourselves without them.
I use a debit card. Do you think this is a bad idea too?
When people talk about credit cards, does that mean debit cards as well?
I always seem to misplace cash. Plus, it is so much easier to pay for gas.
CCHHEETTAAHH!! *wink*
Good for you for writing this! We “drank the koolaid” ala DR last fall. We cut up THIRTEEN credit cards (mostly his and hers pairs to many of our local big names) and have since paid off 15K on a 28K snowball!
And, we made the commitment this week that DaHubby will take advantage of a new program at our local community college to retrain displaced workers for another field and we will be paying CASH for all his classes! *big smile*
And, to the previous poster…yes, you spend more with debit cards too…not as much as credit cards but still more. It’s that exact “easiness theory” that makes you spend more than you intended.
We have one credit card, and like you, pay it off each month. We are trying to only use it for online purchases, like tickets, and paying for gas. And we recently went to a cash budget for our weekly spending. It’s still there and we use it on occasion, but we are weaning ourselves away from using it.
They SO don’t work for me. Even after we quit using the cards and paid them off I opened two store cards when my daughter got married to get the discount on possible mother of the bride clothes. Being me, I either returned the rejects late and/or forgot to pay for the things I kept on time – I paid about 10 times what I “saved” to get out of that mess! Stupid tax, anyone?
I just love you!!! I have really been struggling with this over the past few days… we have never had a carry over balance (always paying it off…) but it DOES seem like we still over spend… and yes.. when I pay with cash at the grocery store, I actually PUT THINGS BACK!!! Will have to talk with da Huz on this one… Thank you so much!!
We use a credit card but are making an effort not to. I should get a debit card so that I can purchase online and things like that. Then I could get rid of our credit card altogether. I have decided not to use it unless I absolutely have to (and for gas – it is way too inconvenient to go in to the store
). But I think I will talk to the people at the bank about getting a debit card.
Thanks for the encouragement!! We have had this discussion. We use a credit card and pay it off in FULL, EVERY month. But we wonder if we went to cash, if we would see greater savings… thanks for posting:)
We have had the same experience, but took another step in going from credit card to cash. We used the debit card believing it was so much better than credit. It is in many ways, but we still overspent. Having cash in hand (and no plastic of any kind to bail you out if you find too many good deals at Target) is a sure fire way to spend less.
Cash only has made an enormous impact on our bottom line and we won’t go back to debit or credit cards! (We, too, keep a debit card for gas at the pump, reservations, and on-line shopping.)
We use a gas card and pay it off every month. Our daughter is in college and our son in high school and they both have cards on our account. Dad likes the convenience of having his babies be able to swipe a card and pump gas quickly.
We also have a general credit card that we use sparingly and when we order online. It is paid off monthly also.
Right now we are paying for our daughter’s wedding. She’s been very frugal and the budget is near $2000. We’ve been buying things little by little so as not to run up the credit card. It’s working so far.
I’m thankful my husband has never gotten us into debt other than a few cars (before we knew better) and our mortgage. We live on one income, too. Nowadays that’s a hard thing to do.
hmmm…….we pay for all household purchases with our credit card–earning cash back and having written evidence at our fingertips of where every penny goes is why–and pay it in full each month. We each get cash every payday for our personal spending money. This is working great for us, but I wonder if you may be onto something. Perhaps we would spend even less if we paid with actual cash–I know going to the atm to get the cash would be a big deterrent for me. We are funding retirement, savings and 529 college funds, but probably not as much as we could.We’ll have to think about this.
Well done for raising the issue again as many people will be in a different position this year than they were last year due to the recession. When doing my grocery shop it has become clear that If you only have a certain amount of cash in your purse it is surprising how many of those NEEDS actually turn out to be WANTS.
We cut up our cards in Sept. of 2006 and haven’t looked back. We did have one potential issue with a car repair (over $2000!!!), but we just told the manager that we couldn’t pay for 10 days and he was fine with that (of course, he kept the car). Husband upped his overtime (he’s an RN), we pushed bills around a little bit, grabbed some from emergency savings, etc. and came up with the money. We also shared one car for 10 days (nobody died). Had we put the repair on a credit card, I KNOW we wouldn’t have made the same effort to pay it off in 1 month…something else would’ve come up (it always does).
We paid off this car a few months ago…now that payment is automatically deposited in a “new car/car repair” account.
Rhonda
We use a credit card for everything and pay it off every month. Like you, we earn money back and consider that we’re outsmarting the credit card company. It’s convenient when we tally our expenses into our budget because (almost) everything is on the statement. I’d likely spend less if we used cash, but cash isn’t handy, right? I hardly ever visit the bank and don’t know my PIN for the ATM. These things could be corrected, but I’m still sticking to plastic for now. It works for us!
Thank you for posting this again. My husband and I definitely fall into the swipe the credit card and pay off the balance each month category. I just forwarded him your blog post. The amount you saved really opened my eyes. I hope I can get my husband on board with keeping the credit cards at home!
We are with you on this one. But I understand why people are hesitant… it so hard to part with a friend that let’s you do what you WANT to do. Like you we use our check card (bank card, debit card) and just like a credit card our spending appears on our bank statement every month! You CAN LIVE WITH OUT A CREDIT CARD, PERIOD. If we don’t have the money we don’t buy… very simple, very easy.
I gave up the credit cards at the first of the year and like you it was hard at first. Now, I don’t even miss them. I do still use my debit card for most purchases since that works for me. My one change here is being diligent about balancing my checkbook/budget. I now know at all times how much I have left to spend in each envelope, even if they are electronic envelopes.
I use my debit card for everything. In the pass with cash I would be reckless and spend without tracking. Now I keep a very detailed budget and once I’ve used that fund for the month I must do without. I am not comfortable carrying around a bunch of cash but it does give you a better sense of actually spending money.
I have a credit card that I carry for emergencies only and I also use it for the occassional online purchase (and immediately pay it off withonline bill paying). I know that I have issues with overspending when I use a credit card so I prefer to just avoid them. I only keep the one card because I refuse to use a debit card in certain situations (online and such). I’m just not comfortable with it.
We use credit cards and we pay them off each month. We have never been in debt and have hundreds of thousands of dollars to our name from just good savings habits and living below our means. So, while I do think credit cards are a trap for some people, they are not bad for everyone. Also, some credit cards provide insurance as well as fraud protection if you are purchasing airline tickets or renting a car, for example. I do understand that it is easier to spend when one is using plastic versus cash. But I usually only go shopping to buy specific items and rarely walk around the store willy nilly picking up other things as I don’t really like to shop. Having said that, I do think credit cards are bad for a large percentage of people, but not for everyone.
We have one credit card. We use it to purchase things on-line that we can’t get in town. Yes, it is paid off each month.
As Dave Ramsey says “If you play with snakes, you’ll get bit”. Now I know that many people are disciplined and careful with these things. However, we were not, and we are in the biggest financial mess. It will take a miracle from God to get out of it. I still can’t believe how quickly it spun out of control. Our high school economics teacher used Financial Peace as the curriculum. Why didn’t I listen?!
We gave up our cards maybe a year ago. They did not work for us, we were part of the 70% that was not paying the balance in full at the end of the month, we were paying closer to the minimum.
But, we are getting started on the Total Money Makeover, and we are motivated. I agree that I spend better with cash. I have suggested to my husband that we pay our bills and then take the spending money out to use for the rest of the week. So, hopefully that is something we can commit to.
Thank you for the advice! I found your blog and this post last december. We have been using cash ever since!
This is certainly still VERY relevant. Hubs and I gave up our cards years ago. We do not miss them. Cash is the only way to live.
A few months ago I bought a Dave Ramsey book. I have yet to finish reading the whole thing (I keep waiting for a chance to sit down with hubby to read it together…hasn’t happened). But, I got far enough into it to decide to cut up my credit card. I didn’t have a balance on it, but I also know that I spent a ton more money at the store (instead of putting it into savings). The same thing happens with the debit card, so I usually leave it at home or in the car when I go shopping. That way I can only spend the cash I have on hand.
You have certainly inspired me to change the way I think about money. We’ve been building up our savings, paying off debt more quickly (car and student loan) and paying cash for almost everything. It’s great!
What a timely post for me to read. I recently approached my husband with a Discover ad which tauts it’s 5% cash back and $100 back from the 1st $500 spent. My husband started politely shacking his head back and forth before I could finish my “reasons why we might want to consider getting this” talk. Thanks for the post!
Wendy
My hubs and I have a pre-paid credit card that we use. We go to Wally world and load his paycheck onto there for our monthly bills. It is wonderful because there is no way to overspend. When the money is gone, it’s gone, and that’s it. We generally pay our bills online, and save money for postage. We leave a small amount of cash out for misc. spending, but other than that, we can access the account online at anytime, and keep close tabs on our $$. Thanks for your post! =)
Great post, and so encouraging. Unfortunately we have credit card debt. But as in do we use them currently, that’s a big fat no!
While I agree that credit cards arent good unless youre paying them off in full every month, what about your credit? Don’t you have to have at least one credit card to help your credit?
Thankfully we do not have credt cards. I always wondered about that cash back deal though. Thanks for putting that into perspective!
Great post. We pay off our card every month and thought we were doing the right thing too. I have been wanting to switch to cash only, but have been putting it off. I think I now have the motivation. Thanks!
My family does keep a credit card, but it is an emergency card ONLY. It is reserved for suprise bills and medical expenses, or a boost for times like when dad (who worked from home) found he had to cancel a weeks worth of jobs becaue his truck died. I think it’s important to have something there in case there is an unexpected happening (having said this, we are a low income family so we had no savings, there was nothing to save. For someone with a savings account this isnt nececary)
We also use it for online purchases with the proviso the money is set aside, or paid or straight away, and since they’re only online purchases and have to be paid immediatly there is less temptation for ‘little extras’
Great article! I had never thought of it being a problem if paying in full each month.
We have been using ours exclusively for emergencies since we got back from Japan and it has definitely worked out great.
We just canceled our 2 Visa cards. I am relieved. We still have one Amex but we will cancel that one in the future. Having an emergency savings account makes more sense than using a credit card.