I recently discovered a new personal finance blog called Man V Debt. The author is a guy named Baker who, along with his wife, is waging a personal war on debt. One of his first steps was getting rid of all his credit cards. GASP?! I guess you can tell which side of the war I am on. Here is a guest post from him.
There are two extremes when introducing the concept between using cash (or debit) and using credit. In the one corner, you have those crazy people (a.k.a. me) who live completely without credit cards altogether. Not only do they cut-up their credit cards, but they tend to go as far as canceling the accounts. In the other corner, you have the credit card “gamers.” They are constantly juggling specialty credit cards, in-store charge cards, and 0% balance transfers. They are mixing and matching specific purchases with specific credit lines in order to maximize cash-back, airline miles, or gift cards to the mall. The average person, however, finds themselves wandering somewhere between these two extremes.
Before we get into the details of why my wife and I have actually embraced one of the extremes, let’s review some of the basics:
Benefits of Cash
- Increased Emotional Attachment – You’ve probably heard the different studies about how the average person spends more when using credit cards. Some say 8%-10%, but I’ve heard others claim as high as 12%-18%. At the end of the day, I couldn’t care less about some university study. What matters most is how it affects me. As I’ll explain later, using cash/debit triggers different reactions in my brain that I know help curve my impulse spending.
- Tangible Budgeting – There’s nothing like looking into an envelope marked “FOOD,” which holds exactly $82 and seeing the cashier ring up $90.74 in groceries. That’s the kind of in-your-face budgeting that credit cards are great at detaching you from. Sure, we are only talking about $8 in this example. But if you are like me, you love hunting for a deal, utilizing coupons, and would surely bend over to pick up a quarter in the parking lot. What’s the point of budgeting if not to save that $8 from vanishing.
- Simpler Financial Accounts – Although cash often times takes more effort to track effectively… …it does a wonderful job of simplifying your overall accounts. I’ve conversed with readers whom have over 10 different credit cards. They have one for 3% cash-back on Gas, one for 6 months same-as-cash at Lowe’s, one for 2% at Kohl’s, and one that earns triple miles every time you buy a Venti Cinnamon Dolce Latte from Starbucks. The best of the best do a great job of keeping it all together, but personally the thought makes my head want to explode into a million pieces. Call me “old-fashioned,” but I just love the ability to walk up and pay in cash.
- Prevents Unexpected Fees & Change of Services – Recently, credit card companies are really starting to play some games with consumers. Changing limits, due dates, rates, reward programs, and even annual fees has become much more frequent. Although there is currently legislation in the pipeline to combat some of this, we all know it will be a long while before the actual enforcement of the new regulations. Luckily, a pair of scissors and a phone call was all it took to elect out of this madness (actually it took months of aggressively paying down the debt, first… but you get the point).
- Lowers Risk Of Identity Theft – The less open lines of credit you have (used or not), the less your risk of identity theft. Actually, it doesn’t get any simpler than that.
Benefits of Credit Card
- Greater Convenience – If we are being honest, there is nothing easier than swiping your credit card. In fact, Visa is now promoting the new scanners that let you simply “wave” your card, as if swiping and signing were just too time consuming. There is some merit to all of this, though. If I’m really, really frustrated sometimes I’ll throw everything out the window and swipe my debit card. I know… I know… don’t tell anyone.
- Digital Tracking – I struggled with this one, at first. After all, I’m a child of the computer generation and do all of my banking and fixed-expense bill paying online. Luckily, I still get my fix with my occasional use of my debit card. We’ve also learned to maximize the benefits of tracking spending on paper, as I’ll explain later.
- Cash-Back/Rewards – Usually rewards are somewhere between 1%-3% depending on the type of card and the category of spending. The most “sophisticated” of the credit card jugglers can usually get around 2% overall. If you are able to exercise extreme control you can approach this type of return on your spending.
- Physically Safer – If your purse or wallet is physically stolen, most credit cards offer 100% protection. It should also be noted that this is true of most debit cards, as well. However, there’s no protection if some bad guy steals your cold hard cash. Although most of us aren’t regularly the victims of thieves, this is still something you should take into consideration.
- Establish Credit History – Of course, credit cards when used wisely can help build up credit history. Be careful using this as the ultimate excuse, though. The streets are littered with tons of people (myself included) who wish they never would have starting using credit cards in the first place!
What Made Us Decide On Cash?
Ultimately, we decided that the benefits of cash far outweighed the benefits of credit. It was a close battle, but in the end cash won out because of a little principle we like to call:
The “Do We Really Have The Money For This Now?” Syndrome.
Every time we went to pay with cash we were confronted face-to-face with this question. Even when we used debit, for a split second our minds would jump to thinking about the balance of our bank account. However, whenever we used credit cards we were immune to this type of mental hurdle.
Our strategy for curving impulse buys and staying on budget is to make sure we have to jump over as many mental hurdles as possible. Each additional hurdle made us either confront our impulse buy or quickly generate an acceptable excuse. Often times no excuse could be found.
In addition, we found that tracking our discretionary spending on paper offered even more psychological reinforcement. Once we spent the money out of a given envelope we would immediately write down the purchase on the outside. Once again, if only for a split second, we were confronted a second time with the type of charge and the amount. Tracking spending this way has helped reinforce our responsible spending and has often times brought another round of regret to our overspending.
To some these may seem like insignificant observations. But I can tell you first hand that they’ve helped usher in a new era of awareness and transparency into our financial life. The benefits of these “mental hurdles” are what ultimately pushed us over the edge in our decision to ditch the credit cards.
What about you? What systems have you adapted into your financial life to help you control spending? Do you save more by using cash or credit? Join in on the discussion by commenting below!
If you enjoyed this post be sure to subscribe to Baker’s RSS feed or email updates.
Welcome to Bargain Babe! I’m Mara, and I’m so glad you’re here. I am an obsessive bargain hunter and penny pincher, and I am determined to live a full life without EVER paying full price. 
Personally I use credit cards as much as possible. The digital tracking and near instant categorization of expenditures appeals to me. I also keep a budget spreadsheet. Any month that I go over budget in any item I highlight it in red and make notes about why I went over budget.
I also try to channel as many of my fixed expenses through my credit cards as possible. That’s free money in the form of points/cash back just for paying your utility bills. Oh how I wish I could pay my rent with a credit card.
Credit card companies are also a great 800lb gorilla to have in your corner if you have a problem with a merchant.
I dislike using cash because I’m the kind of person who will forget to go to the bank during the week. I dislike manually typing in all of my purchases.
To be fair, if I used cash I would probably buy a bit less than I do with credit cards. Some money is just easier to part with via credit card. I come in significantly under budget on most months so I don’t consider this an issue that needs to be addressed right now.
I’m the exact opposite: I’m ok with a debit card, but cash in my pocket? Yikes! It disappears like it was money made out of candy! Something in my brain associates money in my bank accounts (including my credit card) as “serious money” associated with bills and planned purchases, and also thinks that cash is fun money, for spending at will!
But the point is, I know this about myself. I’m less likely to overspend with a credit card than with cash. I could do things to change this – try the envelope system, for example – but I’ve got a system that works for me. I think people just need to monitor their spending with different methods, and figure out what their personal relationship with cash, debit, and credit is.
I’m with you – I don’t care what the university studies say, because each person needs to figure it out for themselves!
I’m with you Stephanie. If I have cash in my pocket, I spend it like THAT! Plus I like that credit cards give me a detailed account of where my money went each month. Cash disappears without a trace. To limit my cash spending I give myself $100 at the beginning of each month. When it’s gone, it’s gone.
I used to be the same way with cash, when I also had my debit card or credit card as backup. Now that we only use cash and the envelope system, I think twice before spending. If I look in the grocery envelope and there is only $10 left for the next two weeks, I know I can’t just spend on what ever I feel like. The envelope system is not the same as just having a random $20 in your pocket, I promise!
With that said, it works for us, but is also a little more time consuming as far as trips to the bank go, but the financial rewards (and the debt paid off) is well worth it! It’s much easier for me to keep track of our budget this way than trying to make bonus cash or rewards by using credit cards.
How do you buy airline tickets without a credit card and how about buying on the internet?
For me credit cards are strictly a matter of convenience. (How can you order things through the internet without a credit card?) I don’t think using a credit card vs a debit card or cash has much influence on my spending. I ALWAYS pay my card in full every month, so it’s just 30 days free credit.
I choose the credit card path over cash whenever possible. For me, it’s all about the bottomline. Cash has cash value. But a credit card with cashback rewards or air mileage gives you something extra back for spending the same amount of money. In addition, they go to bat for you if there’s a problem with a merchant. And then there’s the grace period. Cash can’t do any of those things for you. The secret is to forge a strict discipline over your finances. People work hard to attain the rank of a blackbelt in martial arts. Why can’t that hard work and discipline be applied to money? Don’t think of your credit cards as credit cards. Use them as an extension of cash only. That way the entire bill can be paid off by the due date and no interest charges will be accrued on your account. Also, I like being able to pay all my credit card bills online on the due date or one day before in order to avoid late fees. Paying online gives you an instant payment confirmation # and also eliminates the hassle of writing out a check, placing $.42 worth of postage on the envelope and hope that it doesn’t arrive late or gets lost somewhere along the way. I also never use debit cards because I do not like the idea of having 24/7/365 access to my bank funds. The money in the bank is there for a reason. Leave it be. In my eyes, debit cards are a negative convenience that ultimately hurts people the most that can least afford it. And you run the risk of paying those ATM fees. Imagine that. Fees to get your hands on your own money. No thank you. Are debit cards safer than cash? I suppose any other form of payment other than cash is safer. But without the extra rewards, you might as well use a credit card for maximum value. As a rule, I usually $10-$20 in cash with me just in case I go someplace that doesn’t take credit cards such as ARCO gas stations and my local Chinese take out restaurant. Another reason why I only use cash in emergencies is that cash is filthy. I do not like to dwell on where the cash in my wallet has been or what trace substance either chemical or biological might be on it. Many people have extremely poor hygiene, and people will put cash in the “oddest” places. Final thoughts. We must all be aware of our surroundings especially to those nearest us when making a purchase. A person seen to be carrying more cash than the next person makes him a jucier target for opportunistic robbers. People that use the ATMs also make themselves juicier targets to those that don’t use ATMs. Also, people that use cash all the time and don’t trust banks puts themselves at greater risk for home invasion robberies. Once people get a whiff that so and so keeps all their money in the house, they make themselves targets to dangerous and desperate individuals. Besides, putting money in a bank earns you interest. Your mattress does not.
I think as long as you know you will not over spend with credit cards they are the way to go. With credit you receive points or miles for the items you are going to buy anyway.
I’m in the middle: I use credit cards a lot, never carry a balance but think cash is better.
My problem is that I’m always paying off a credit card bill and don’t have the cash which which to … pay for everything.
I acknowledge that you have better accounting when you use credit cards, and you also can get rewards (and I do), but I think paying as you go with actual cash is better — why let The Man know what you’re buying?
Cash! (With the disclaimer that I support cash but don’t use it all that often)
I use debit cards on most of my spending, let it be online or offline, and now that more and more companies are introducing ways to pay with debit cards online makes it even easiar for me. Also the new debit visa card is great.
I sometimes use but don’t entirely trust debit cards – have heard too many stories of ATM scams and the like. Credit cards can be stolen too, but there seems to be more recourse with them then if someone gets your debit card PIN and empties out your bank account.
One thing that works for me is to put part of that cash in the back of my wallet and ‘pretend’ it’s not there until the ones and fives in the front part are gone. Sort of like hiding half of an oversized, delicious dessert in the freezer ‘for later’. If I am paid a large amount of cash I often hide most of it somewhere at home and put $100 or so in my wallet…
We use credit cards (2) for virtually everything, pay our statement balance in full monthly, and go for cash rewards. Where one card has a 5% reward for specific types of purchases, the other offers only 2% for those same specific types of purchases. Guess which card we use. For all other types of purchases, both cards have a 1% reward. Thus, we essentially get a 5% or 1% discount on every purchase.
Diane, sounds like you know how to play the credit card game very well. Kudos!
One of the things I just realized this year while I am out of work and trying to keep my home and credit rating is this: even at a low percentage, the finance charges each month are considered a “purchase” by you and are therefore included in the balance. So even if you aren’t making any purchases, just making payments, you are still accruing more debt! Whoever invested compounding daily interest for credit cards was EVIL!
Having been on this planet for a “few” decades, I’ve learned through my past mistakes what my economic weaknesses are, and now use a combo of cash and credit cards. I use credit when I order things on-line or through a catalog, but pay bills by check (old-fashioned, I know). I also take $200 out of the bank at the first of each month, but keep the bulk in a safe place. I use the cash for food, household supplies, and the occasional movie or meal out with friends. I pay all credit card balances in full each month. I know approximately what my monthly expenditures are, and live accordingly. Sometimes wisdom only comes with age.
Sounds like you have a great system, Ellie.
I think cutting up all your credit cards is a very poor financial decision and I wouldn’t take advice from anyone who recommends this. I am currently trying to buy a house and fortunately have good credit – partially as a result of my resposible credit card spending. Even still, the negatives on my credit score are related to not having credit accounts long enough…
Add that to the airline miles, points, etc. from credit cards, and you are literally leaving money on the table by using cash only.
Try recording every purchase you make – cash, credit, check, or debit – in a spreadsheet the same day that you make it. For me, this has caused the same reaction to spending that you have with cash–don’t spend it if you don’t have it!!
JC, I agree with you that cutting up credit cards is a bad idea – for most of us. But for folks who really cannot control their spending, it is a wise decision. Like you, I am building a credit history through my cards and rely on the detailed accounting my credit card company provides me with each month.
Just found this article on a google search and I have to say I am completely in agreement with man vs. debt. People often throw the emotional reasons to use cash instead of credit in the trash and I believe it is because they don’t want to believe it can happen to them. (spending more than they would if they used cash)
While I agree that there are some that do not carry a balance and manage just fine, I still do not see the point in using a credit card. A debit card can do the same things and because it is tied to your bank account you are less likely to spend more. Debit cards even have rewards with them as well now!
GREAT guest article!
Does a debit card protect you if you subsequently contest something about the purchase? I’m asking because I’ve never used a debit card, only credit. Also, my credit union just sent me a debit card to replace an ATM card. I’m a little leery about using it but plan to do so in the same way I did my ATM card.
I don’t know, Diane. I’ve never had a debit card. But my hunch is no. Does anybody know?