Could Living Without Credit Cards Reduce Spending?
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photo: maury.mccown
I’ve decided to give up my credit cards for one month beginning April 1. Nope, this is not an April Fool’s joke.
I got the idea after talking to a friend who had to cancel her credit card because of fraudulent charges. She didn’t have a backup and was forced to go without a credit card for about a week.
My friend was astonished at how different it felt to make regular purchases – with cash. At Target she picked out a gift for her grandson’s birthday that came to $61. She balked. $61? In cash? She would not have thought twice about swiping her plastic.
My friend’s experience made me wonder. Is it easier to stay on budget with cash? I suspect going cash-only will help me save even more than basic budgeting. I pay my bill in full every month so this experiment is not about learning to spend within my means. It’s about spending less.
If you hold one of the 576.4 million credit cards circulating in the United States, you may be tempted to go cash-only, too. I hesitated to give up credit because I spend cash so easily. If I go cash only, will I run out of money in days?
I asked readers on my blog, BargainBabe.com, what they thought of a cash-only experiment. Guess what? They said DO IT! When I last checked, 86% of readers had voted yay, 8% suggested an alternative, 4% said “no way,” and 2% had no opinion (but were nice enough to vote).
A reader named Richard said he would never give up using credit cards because of the perks. “We use our credit card for everything we can,” he commented. “Why? Airline miles. Last year we flew roundtrip to London, business class, for a total of $330.” (That was used to cover taxes, he explained.) However, Richard says he uses Quicken to immediately deduct all purchases from his checking account: “Sort of a pseudo-debit card, so it’s like we pay cash. I pay the credit card bill online a day or two before the statement date so our credit report shows minimal card usage.”
Another reader, Ashley, pointed out another disadvantage of shunning credit cards: “A reason I have had problems making the switch is that I use Mint.com and if I use cash it can’t track my purchases. I could but always forget to update and next thing I know I don’t remember if I spent $5 on groceries, $10 for a meal and $5 for parking or was it $10 on groceries and $5 on the other two.”
But reader Jenni says there is one major perk of using cash – staying on budget! “A dear friend uses this method All The Time, and she has 3 girls in various activities. Her budget is planned down to the penny, and when they are paid she gets out the cash she will need for the entire month. She bags the cash for their activities and labels them (i.e. “piano”, “ballet”, etc.), then does the same with her bills (“market”, “cleaners”, etc.). She even has a “miscellaneous” baggie for gifts and mishaps. She saves quite a bit of money every month, and she and her hubby are self-employed, so this helps in leaner times. Her spending is never out of control! LOVE her organization.”
With that reassuring comment in mind, and just one day before my self-imposed credit-card moratorium begins, here’s how I am preparing:
* I’ve hidden my two credit cards in my jewelry box so they are out of sight, out of mind.
* I’ve averaged my credit card bills from January, February, and March and set that as my spending limit for April.
* Heading to my local bank branch to withdrawal a fat roll of cash (my average credit spending from the past three months).
* I plan to carry around $100 at a time for security.
* Start spending!
My biggest concerns are safety, not having enough cash on me, and figuring out what to do about online purchases that require credit. But at least I don’t have to worry about identity theft. I’ve decided to keep paying two bills – cell phone and student loan – as I have in the past, through a transfer from my checking account. These bills are consistent month to month and I don’t have the option to not pay them. My focus is on how using cash changes my day to day spending, not my fixed expenses.
Okay! Ready, set…cash!
Julia Scott blogs about bargain-hunting at BargainBabe.com. Check back with MintLife next week for an update on Julia’s cash-only experiment.
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33 Comments so far
leave a commentAttagirl! Dave Ramsey would be proud. I wish more people were like you. I still use a debit card for online purchases and bill payments online, but I use cash for everything else. I can totally agree with the notion that it’s EMOTIONAL to use cash. Couple that with creating (and sticking to) a budget, and you’ll fell like you got a RAISE! Good luck!
I did and it does. I’ve only done it for a month now, but as of today, the last day of my current budget, I am $ 70 under budget.
It’s the same budget I was on when I used my credit and debit cards, but somehow I spent less. I picked up less extraneous stuff at the grocery store knowing I couldn’t buy it if the money wasn’t in my wallet.
Good luck.
Also, you should freeze your credit cards in a large chunk of ice and keep them in the freezer. This way if you really want something you’ll have to wait for the ice to melt, and by then you may not want it anymore.
Well, I’m there with you in spirit, but I’m with Jenni, in that ever since I switched to Mint, I try to use my credit cards as much as possible so the tracking for my budget is as precise as possible. That actually helps me personally stay on budget more than anything else. When I’m thinking about choosing a restaurant, if its toward the end of the month and my iPhone’s mint budget bar shows that category as pushing red… I will usually think about a cheaper restaurant, or cooking at home instead.
I think a valuable take-away from your post for me will be to consider it as a thought experiment. Every time I’m at a register, before I swipe my card, I will try to visualize the total as a big pile of cash, and see if I still want to make the purchase.
Maybe I’m the crazy one, but putting cash into separate monthly expenditure bags sounds like someone simply can’t handle a proper budget.
The problem with using cash is that it’s not trackable. You can use a debit card as a ‘credit’ card and get 90% of the benefits of cash, while still being able to track what you’ve spent. People who use cash a lot can’t figure out what’s happened to it at the end of the month, while if you get a credit statement, you can see exactly where your money has gone.
Also, when purchasing something with a credit card (again, used from your debit card), it’s far easier to return stuff if you need to, to dispute a purchase (if you buy something that’s not what it says it was for example), and you still know it’s coming directly out of your bank account.
The last problem with using cash is if it is stolen, you are out of luck. With a debit/credit card, you can report the card stolen and you are only out maximum $50, and many times not even that much.
So I tell people to get a debit card and always use the credit option.
Of course cash is trackable – it’s called “save the receipt”. Using a credit card simply for “tracking purposes” is stupid and lazy. You seem to forget an entire world existed without credit cards prior to about 50 years ago and many of individuals tracked their purchases and budgeted.
not trackable? it’s called a ledger. or quicken. yes, you have to do a little more than sign a piece of paper, but you still get accountability. it’s also just as easy to return things with cash. try it.
the bottom line is, you’re paying a huge company for a minute loan with massive interest rates. cash. it’s great- i love not living with overdraft fees, APR rape and waiting on hold each time i have a question about my finances.
jennifer, you’re giving your friends bad advice. chris, i’m with you.
I agree with Jennifer. The debit card is the “third way” between credit cards and cash.
I actually didn’t even realize I could use the debit card to make purchases as if it was a credit card until this was pointed out to me. As someone who paid off the credit card every month anyway, there was no longer any reason to even have a credit card, so I got rid of it. I tend to use cash for most purchases but it’s easier to have the debit card for certain transactions (like self-service gas, etc.) For the occasional large purchase, it’s nicer to have the money taken directly out of savings account right away.
Hi Julia,
I’ve been living without a credit card for over 3 years. If I can do it, so can you.
CNN Money interviewed me on the topic and I share my advice in that article – http://money.cnn.com/galleries/2009/pf/0912/gallery.living_debt_free_cash_only/4.html
Cheers,
-Alex
I’d agree with spending cash being a more emotional experience than swiping plastic but I’ve found my spending to be less when I use my debit card. I find that cash won’t stay in my wallet very long but when I think about using my debit card, I think about having to update my check register. Most of the time, it’s not worth it to swipe the card (and have to haul out the register later to record the transaction) so that keeps my spending on non-necessities in check. Although I will admit I’m still an obsessive register balancer; I used to work where we bank and would probably die of humiliation if we ever overdrafted an account, not to mention the $33 fee!
The idea of putting them in envelopes will help to ensure you’re carrying enough cash around. Label them groceries, entertainment, clothes, etc. Bills that you can’t really effect like utilities and car payments aren’t as important. When you go grocery shopping take your budgeted amount and a calculator.
If you put $250 in the grocery envelope then see what’s left at the end of the month. If there is a $20 bill in there then log $230 for grocery expenses this month. You don’t have to log every visit to the grocery store.
Also, if you find something you just can’t live without, then realize the money has to come from somewhere else. Take $20 out of groceries and $10 out of Misc. expenses. I think it is much more obvious with this plan. You see the consequences. And you feel the gravity of your choices. The cards are just too easy. Its like an out-of-body experience or something.
This has inspired me. I just started using mint.com. But I think that in a few months after I’ve tweaked my budget and see what works, I’ll try going all cash on the items mentioned above. Good luck!
>Maybe I’m the crazy one, but putting cash into separate monthly expenditure bags
>sounds like someone simply can’t handle a proper budget.
A budget is a tool to help you stay on target with spending. Envelop/Baggie systems are a way to simplify and organize a budget. If overspending is a temptation, isn’t it more reasonable to find processes that help you control that problem? My wife takes the internet cable when she leaves for work, can you guess what my problem is? Is it immature not to build a process that helps me avoid being unproductive into our daily lives? Is joining a workout class, a gym, hiring a personal trainer or finding a workout partner indicative of some one who “can’t handle working out” or indicative of someone who is being proactive in building systems, processes and supports into their life to help them perform better?
Imagine a world where people “get” it that being in debt is a bad thing. Ahh, but the marketers are so good. Being in debt for a house- good, school- good, car- good. You end up selling your soul and everything you “dont’” own to the banksters.
I live debt free and would never think of living any other way. Free at last, free at last.
I’m 25 years old and have never had a credit card, always used debit. Spend what you have, don’t spend when you don’t have money. I can’t understand why this is such a difficult concept for so many Americans.
I work for PerkStreet Financial and, like Dave Ramsey and others who have commented here, we think that debit cards are a good alternative to credit cards – especially when it’s hard or inconvenient to use cash. Research shows that people spend about 18% less when they use debit instead of credit.
It used to be that you had to spend on credit to get great rewards. Banks offer debit card rewards but they give you next to nothing. We give customers a full 1% back (and 2% for the first 6 months). I like that we reward people for doing things that are good for them – like avoiding overspending and interest charges from revolving credit card debt.
Laurie McLachlan
Age 30, wife and 1 kid, have never had a credit card, always pay cash or debit. We own $350k appartment, good car, have solid savings in bank and no mortage. When I met my wife, she was in debt, with 4 CCs. She says not having credit cards is really the best approach to save money and avoid any debt.
I dont understand why this is so hard. Ive never had a credit card cause they are the devils hand in your pocket waiting to set a scourge upon the earth.
That said, its not hard to do and you may have heard about these things called debit cards. They work kinda like a credit card accept they take money out of your checking when you use it so its like you just spent real money and at the end of the day you have a full accounting of what you spent so its easy to keep track of. Hell most banks let you call them and find out this information over the phone from an automated system.
Not to be rude but youre making something incredibly easy to do sound like some daunting task that you need to take a college course to be able to do. Its not hard at all really, i mean unless youre so well off that a budget isnt something that youve ever worried about before and youre doing it for the first time or something like the common folk.
The return argument would likely be rendered moot. Because, with cash you actually think about what you are buying, and you won’t be whimsically returning items.
The friend with the money baggies is trying to alter her habits. The baggie idea is a good one, and she will likely wean herself off that method in a couple months.
Check out dave ramsey website and you will understand more why to use cash and how to get out of debt at the same time.
I wish you luck in using cash only. I remember doing that back in college and I wouldn’t return to that period in history.
Some handle a “cash only” setup very well, even thrive on it, but others it becomes a stress point. They are so concerned about saving money that when it comes time to spend it in an enjoyable way they can’t.
I know this method doesn’t work for me. I’ve tried it, and it pretty much just added to my stress. I found that I do better with a few simple rules (e.g. Credit Card is paid off every month with ultra rare expensive buys being two months), and working off of monthly averages for food, clothing, toys, etc.
So my only real comment is that you need to ensure this will improve your life and reduce your stress level. If that isn’t the case then you’ll not be happy, and that will have a profound affect on your life.
- Ben
I have had a credit card since i was 18.
Now, the thing is.. I use cash and credit depending on the purchase. For example, while in the united states about a week ago I found it amazing that people use a credit/debit card for everything including McDonalds! $4 on a credit card? You can’t be serious.
So what do I do? I withdraw maybe €80 to €120 whenever I am in town (I know I am going to be spending money). For anything large, like €100+ I would use a debit or a credit card. There are fewer of these transactions.
I have always been taught to use a credit card for larger items, in order to ensure you have cash at the end of the month to pay off bills(including your credit card).
At the end of the day the only way to know your spending is to make a conscious note about it and take it away from your income. More money in, than out and your good.
Pierce
As of today, I’m starting a cash only experiment for the next 60 days. I have an app on my iPod called iXpenseIt and use that to track all types of expenses. I’ve been tracking them for the last 2 months to be able to figure out where my money is going. So I’m used to using it and it’s easy. After I take out my cash today, I’m putting my debit card on the wall with my credit card and I’m jumping into the land of cash only living. Good luck to you this month on your experiment!
This is how I live my life, and has been for over a decade.
Back in college I was young, dumb, and full of… wants. So I got a card while walking through the University Center. That same year, I got a summer job at the local theatre that paid $750… for eight weeks of full-time work, PLUS the local grocery store started accepting Visa. It was the beginning of the end for me. By the time I graduated I had a theatre degree, $4,000 in credit card debt, and no way to pay it back.
Years later I have settled all that debt and lived with cash/debit card spending my entire adult life. I believe I have a level of financial discipline now that I rarely see around me, and the only debt I carry is a car loan which is meticulously paid on time.
The drawback, of course, is that a “lack of rotating credit accounts” hurts my credit score and my ability to get any more credit. At this point I need to get a few secured cards and carry minimal balances from month to month to “fool the system” into raising my score for when I am ready to purchase a house. I live of credit would also be useful for emergency situations for which I have always been forced to rely on family.
Other than that, screw credit. It’s hard enough to try to save anything, much less live within your means, even with cash-spending as the rule.
I haven’t used a credit card in years. If I need something expensive, I just save up for it. No big deal. Credit cards are the work of the devil and I plan to stay away them forever.
I feel like someone should write an article about the hazards of “perks”. I am a recovering perks addict, and while I must admit the perks seemed nice at the time, they did indeed drive me to spend more than I would have had I been only getting the real “perk” of a credit card; the interest.
At the end of the day, if you look at what you receive back from most perks programs, you’re lucky to see a return of greater than 1%. ONE PERCENT! The penalty of not paying off your card each month in full dramatically outweighs that 1% and that’s why the companies continue to create new “perks” to keep us buying.
I find that if I stay on a cash primary budget, with plastic being a secondary I personally do much better with my finances. I get a visual clue into how much money I have for the week just by opening my wallet. Sure, I sometimes pull out the plastic at the grocery store when I get that whole king salmon, or for a dinner after a long day of work, but I’m no longer a slave to the 1% return of my perks.
This is an interesting post – especially given the time of year. You can’t imagine how many people pay their tax bill with a credit card. So, I wonder if you took away a bunch of taxpayers’ credit cards right now, how many tax bills would actually get paid.
Honestly, I think being a Mint.com user has contributed to my use of credit cards more than anything. If I pay with card, it’s tracked on mint. If I pay with cash, it’s not.
That being said, I would never carry a balance if I could avoid it. My card is set to autopay — and because Mint does post my transactions immediately, it makes me feel like I’m using a debit card, because I ‘feel’ like I’m paying for them immediately, because they’re listed on Mint.
My solution is actually the best (according to myself
)
I use credit card for the perks as well as the ability to track purchases. This works great for me because I have an online access that allows me real time tracks.
The other benefit, I get roughly 25 bucks cashback each month for my purchases.
Then this is the crucial part. Each month, I set up comfortable level of my credit card balance. Let’s say, I only allows 2000 bucks per month, so I have virtual checkpoints in my mind. For example, if I reach 1000 bucks on week 2, then I would remind myself to stop making unnecessary purchases for the next 2 weeks until the next cycle. This helps me stay on my budget, even using credit card. I use credit card for almost everything and reserve the cash only for purchases from places that don’t accept credit card, Oh, the second part of my budget is I set aside 100 bucks for myself every month for non-credit card purchases. If it’s out, then that means no more purchase. Same thing with the credit card, if it’s @ or close to my monthly number, then time to tighten the belt till the next monthly cycle. It works great for me and thinking to blog it. What do you think? Send me your comment @ adult_young@hotmail.com
I pull cash out of the ATM twice per month (don’t use debit cards because of the annual fee) and when I am out of money…I stop spending. I do use credit cards for business expenses so that I am sure to be reimbursed. I know this is a little old fashioned. However, I have paid off two houses, have zero debt, a maxed out IRA, and a savings account. These are things I never was able to accomplish until a divorce forced me into the cash life.
Julia, everyone here is rooting for you! This is a great experiment and we think a lot of people will learn from your example. I noticed you mentioned one of your concerns is online purchases that require credit cards. I wanted to let you know that there are secure ways to pay with cash online that don’t require a debit card. eBillme is an example and we even created an online Debt-Free shopping mall, http://Shop.eBillme.com, that you may want to check out. Lots of items and discounts from a variety of big name retailers and some debt-free living tips you might be interested in to help you out this month. If you have any questions, we are happy to help. Good luck! We will check back here often to keep up with your progress and your experiment with cash-only.
Samer Forzley
Vice President of Marketing, eBillme
http://www.eBillme.com
Gone into no credit card not by choice but by economy. I love it. It really make you think before you buy.
I never carry cash with me! As soon as I withdraw cash from an ATM, I regard that money as spent; consequently I never withdraw money unless I need cash for something in particular (which is not too often)!
I use a credit card for just about every purchase and I pay it down to zero every other Friday. I don’t get why people say they tend to spend more when using a credit card. It’s money, no matter how you spend it.
Originally, I used to use my debit card exclusively, until I realized I was basically throwing away the money I could be making from cash back rewards with my credit card. As long as you don’t change the amount of money you spend, using a credit/debit card is more convenient than cash.
How To Live On Cash Only
http://www.epinions.com/content_5412659332