A Month Without Credit Cards: The Recap
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photo: paalia
On April 1, BargainBabe.com blogger Julia Scott gave up her credit cards for one month. The goal of her experiment: find out whether using cash only will get her to spend less. After a surprisingly spend-happy first week (she exceeded her weekly budget by more than 60%!),a belt-tightening Week 2 and a reflective Week 3, Julia recently wrapped up her month-long experiment. Here, she lays out the gritty details.
Call me a statistic. During my no-credit experiment last month I did just what studies comparing cash and credit card spending have shown: I spent less with cash. A lot less. But I’m not about to give up plastic. Here’s why:
Credit cards are almost essential for major purchases, unless you want the cashier to give you a look that says, “You are so in the mob,” while counting out $500 in twenties. Credit cards are required for many online buys and to guarantee rentals. If you want to buy a meal or drink in-flight, no wad of bills will grease your throat.
That said, I plan to leave my credit card at home on a regular basis unless I have a pre-planned purchase to make. I can see purchases that require a credit card a mile away, so carrying around a bottomless pit of money is just tempting myself. Plus, credit card perks — my main reason for using plastic — do not add up that quickly. I earned an average of $16 in cash-back credit card rewards per month this year, but on a cash diet I spent $200 less. That’s an awfully big perk!
So what did I spend my money on this month?
A number of seemingly random items sucked up my dollars – like bike repairs and gear in preparation for the Wildflower triathlon on May 1. I say “seemingly random” because unusual expenses like these pop up every month without fail. This is the main reason I created a forward-thinking budgeting system, which you can download from my blog http://www.bargainbabe.com/2010/04/20/why-my-budget-gives-me-1200-a-month-to-spend/.
My totals for each spending category include tax.
Groceries: $172.22
Meals out, including coffee: $21.12
Drugstore items: $43.10
Bicycling gear and repairs: $169.38, including $100 to ship bike across the country and back
Business supplies: $15.86
Ski trip: $95
House and garden: $45.52
Gas: $41.57
Camping: $40
TOTAL accounted-for spending for April: $643.77
TOTAL ATM withdrawals: $1,000
Cash left in my pocket: $11
Total unaccounted spending: $345.23
Total rebates and gift cards earned: $29.69
Percent unaccounted-for spending: 35%!
See that last statistic? A whopping 35% of my dollars disappeared in April with no trace, which is why I’m not calling the experiment a complete success. Without these receipts (cashiers forget to offer them and I forget to ask) the picture of my spending provided above is woefully incomplete. This also explains why some of my category totals — like meals out — seem low.
Adjusting to cash
Using cash for every purchase requires an adjustment period. The first week of my credit card ban I spent like a rich woman, buying people drinks, eating out more often, and splurging while on a snowboarding vacation. The second week I overcompensated, spending only $40 for groceries. During my third and fourth weeks I made careful decisions and planned ahead so I could stick to my target spending goal for the month. Overall, I spent 16.7% less than my average for the past three months.
I decided to tap into my savings to cover a freak mattress purchase that added up to $533. Thankfully, I had the savings to do it: otherwise I would have completely blown my budget for the month. Eating rice and beans gets dull quickly.
Looking ahead
Going forward I plan to use cash for all my purchases that are less than $50, which covers the majority of my purchases. If you are considering using cash 100% of the time I recommend you:
Get in the habit of always asking for a receipt. Many cashiers don’t offer then for small purchases.
Realize that cash is messier than credit. Bills get crunched and mixed up and take up a lot more room than your sleek card.
Don’t stress about taking a few extra seconds to count out exact change. You are not any slower than a person who swipes and signs.
Probably don’t need to carry about more than $50 at any given time. This means you are not in danger of losing a huge amount of money.
Save your receipts. So you can see where your money went by category.
Only carry your credit card when you have specific plans to use it. Otherwise you are just tempting yourself.
Julia Scott blogs about saving money on everyday expenses like groceries, gasoline, and gifts at BargainBabe.com.
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20 Comments so far
leave a commentthis is horrible advice. for those of us who are financially responsible and pay off our balances every month, cash is not as good as plastic. with plastic, especially my AMEX, i get price protection, an extended warranty and points that can be redeemed.
I keep my cash in an interest bearing check account, and use my plastic all month. i pay off the balance every month, so the credit cards are actually giving me a temporary loan so i can earn interest on my checking account, while at the same time, i get points for the same cash i would spend anyways.
however, if you are a free spender without any self control and no sense of financial responsibility, credit cards are a bad idea. to be honest, people like that shouldn’t have credit cards anyways.
Nicholas, while I can understand your dismay with her advice – truly you are an exception to the rule.
Nicholas, I think you misunderstand the point of the assignment… Is it POSSIBLE for Americans to live WITHOUT using plastic? You make the point that you are “financially responsible” and that credit gives you “price protection, extended warranty, and points…”. But as the author of the blog points out, her rewards average monthly around $16 but she spent over $200 under budget that month.
Regardless, the point is CAN YOU DO IT, which does not make sense for you. Too many people today are given credit cards when they should not be…
Also, cash is king when retailers POS systems malfunction and can’t take plastic. It rarely happens, but when it does… woe be to the cashier whose line you go through.
Or… just set up a new bank account with a small regular maintained balance (say 500-800 automatically deposited every month) and get a debit card strictly for that.
Boom, never need to worry about receipts, no large wad of cash in your pocket to tempt you, same speed and comfort of a credit card, and best of all no debt at the end of the month.
Debit cards save you just as much time, energy and money as an all cash lifestyle with more security, less bulk/stress and no funny looks from the rest of the world. PLUS since most are no charge for the card or use and some have perks to actively round up to the nearest dollar and deposit the change into a savings account you can actually make saving for the future easy and automatic.
I agree with smarterthanI. There is only one thing worse than using actual cash, and that is writing checks. I find myself getting really annoyed with the people holding up the supermarket checkout line because they are writing a check.
Cash and checks are anachronistic and a waste of time.
There are card alternatives to credit cards. If I need to purchase something over my daily debit card limit, like when I’m furniture shopping, I stop by the bank and get a gift card for myself. There’s no fee, and it’s my money. If there’s any left, I can use it or stop by an ATM and put the remainder back in my account. The ATM is fortunately right outside my building.
I also have a renewable gift card, that I can add money to online. It’s my dining out/entertainment card. At the beginning of each month, I top it off, and don’t go over that amount for the month.
I gave up my credit cards last year, and haven’t looked back. I don’t miss the debt and the temptation, and I feel like I’m in more control of my money (which is the point). When I want to make a big purchase, I save up for it, put it on the card and buy it. The old way was buy this now, pay it off later. That delay when I’m saving money is important. Even if it only takes me two weeks to save for a large ticket item, that’s two weeks to reconsider whether the purchase should be made. I like that. Impulse purchases are waaaaay down. Even for the little things.
I tend to agree with Nicholas, if you pay off the balance every month, why not get the rewards/cash back that Credit Cards offer. I pay everything with a miles card (including rent!!!). I’ve been doing it a year now and I just have to be careful to actually pay off the balance. I’ve actually earned enough miles that I’ve already cashed them in twice for round-trip airfare overseas. However I do believe the premise that I would spend less by actually using cash; however if you use Mint.com to track all your expenses and keep to your budget, you won’t spend more than you have.
Credit card companies are not very happy with the minority who pay off cards. So, unless you are obsessed they make money from the rest of us. The book I wrote helps get a handle on those eating out, latte impulses. Twenty dollars a day on pretzels and beer makes a college student broke -and- malnourished. Not as rare as you may think. Few show the costs and how to save money not just account for it.
Another “study” that reveals what everyone already knows or should know about using cash / credit cards. Frankly, i’m stunned that this is news to anyone. Props to Julia to try this for herself and understanding her spending behavior, but really, this isn’t a surprise. The lack of financial understanding in the world astounds me. Now if i could figure out a way to exploit it, i’d be rich.
There are benefits to the credit card. But independent merchants and vendors are generally much more appreciative and kind — even submissive — to customers that use cash. The cash makes the transaction real for BOTH parties. I would consider that a hidden benefit. Other customer perks? Improvised merchant discounts, negotiability, merchant upchanging, and the impression that the cash carrier is wealthy and successful.
“Credit cards are almost essential for major purchases,..”
“…no wad of bills will grease your throat.”
It seems to me that cash is legal tender. Refusal to accept it is a crime, is it not?
Legal tender for debt owed – they don’t have to sell you something if they don’t want to, thus nothing is owed.
I’m a believer in plastic, as long as you can hold yourself to your budget. If you can’t, well then use cash.
Ok, I suppose your personal justification for credit is working for you and that’s good but I need to stress that credit cards are not needed for almost all day to day purchases. Just a debit card. I can say this because I have lived without credit cards for almost five years. Every situation where a credit card would be easiest (like when you’re childishly worried about a $10 an hour cashier thinking you’re in illegal business) can be resolved with a visa/mastercard/discover branded debit card which takes money you actually have right out of your bank account without the need for paper money and coins. Also, I must state the obvious and say that if this idea of no credit is unpleasant to you it is because you are living beyond your means. Credit cards and their perks are a nice way to delude yourself, but it’s better knowing you are in debt to no one and that the money you are spending is really yours.
Interesting experiment. Thank you for reaffirming what has been shown in larger studies on a personal level: using plastic helps you spend more.
Most of the people in the comments seem to think that debit cards are the answer to the dilemma. I completely agree that debit cards are the perfect happy medium for this case. I really do hate it when people count out money or change, but it does make the consumer realize how much he/she is spending. When it’s a number and I swipe a card, it takes coming home to check my Mint account to realize how much I have spent. While I would probably be unhappy just spending cash, it would probably decrease my $200/month spending. Happily, though, I have no problems with sustaining that level of expenditures.
Great experiment. I am on month number two while taking a 16 week course called Financial Peace University by Dave Ramsey. I agree, it is an adjustment but if you budget items, and physically put the cash in envelopes, it helps. Also, you can use your debit card for many of the things that credit cards can do. I have been able to make hotel reservations, buy things online, and more with my debit card.
I am not 100% off of cards as I still have my gym membership, and boston organics on a credit card. I think if you can just get used to paying cash for most of your purchases you will find success. As for keeping receipts, as soon as I post the cash transactions on mint.com I file them or throw them out.
Good luck!
This worked with me too. I’ll try to give up on my credit cards completely. It hurts to see money sweeping out of your hand than from your credit card.
I believe avoiding credit cards is great advice for the vast majority of consumers, and I also agree that psychologically, it’s much “easier” for most to spend more when you don’t use cash (applies to debit cards too, albeit to a lesser degree). However, it still amazes me that we continue to use the excuse of doing what’s “easier”. Why can’t we utilize self discipline and stick to our budgets regardless of how we pay?
I learned the hard way (as do most who eventually learn this) while I was in college, and was in severe credit card debt. Today however, and for the past 15 years or so, I live almost exclusively on my credit cards, earning rewards, while my cash earns interest in a money market account, and I not only pay off my cards every month, but I also live well within a strict budget. Yes, it was harder — at first — but with practice and time, I can unequivocally say that I do not spend more with plastic than I would with cash.
I recognize I am a minority here (if I wasn’t, I wouldn’t be getting nice rewards from credit card companies!), but I wish we would teach discipline instead of just simplicity. Sadly, that’s just not the “American Way” anymore.
credit cards are the worst thing in man kind its a cheap ass way to live now pay cash thats the dave ramsey way
While I agree wholeheartedly with the above article, I’m a firm believer in the Debit/Check Card. It offers me the same ease of use that a Credit Card offers, but ensures that I’m constantly looking through my check register. As long as I keep track of where my money is going and exactly how much I have left, I’m more likely to keep myself on budget.
Overall, it’s exactly like working on a cash-only budget while still giving you the ability to track your expenses each month. That’s my only problem with a cash-only (no debit card) approach because I tend to lose receipts and would have a very hard time remembering what happened to those 4 $20 bills in my wallet.
While credit cards make it easier for me to spend without caution or limitation, cash makes it easier for me to forget where all of my money went. I think debit cards are a great middle ground. I still have to work within the limits of my checking account (so getting out-of-control is more difficult) and I still have a record of every transaction. Win-Win!
I do agree, however, that it’s best to use a credit card for larger transactions. Even if you have the cash to pay it off immediately, I would put the new TV / Bed / Entertainment System / Plane Ticket / etc. on a credit card (with rewards) then pay it off with my available cash as soon as the transaction cleared. There’s nothing wrong with wanting to get a little something back for the money you just spent. If you were to pay it all in cash, that would be it. There would be no cash back or travel points to spend later.
Nice article though, when I put my cards away and stopped using them for everyday purchases it made a huge difference in the amount of money I was able to put away.
While credit cards make it easier for me to spend without caution or limitation, cash makes it easier for me to forget where all of my money went. I think debit cards are a great middle ground. I still have to work within the limits of my checking account (so getting out-of-control is more difficult) and I still have a record of every transaction. Win-Win!