3 Reasons to Stop Using Credit Cards and Start Saving Some Cash

by Evan LeBlanc

Can you live without credit cards? Should you? Maybe, at least for awhile. Here are some good reasons to stop swiping so you can start saving some cash.

Using cash has become almost completely out of vogue in our plastic-dominated lives where online shopping is king. Recent studies have even shown that only 10-15% of Americans prefer to use cash to make everyday purchases.

Not to rage against the way that the world is clearly headed, but I am not sold on the idea of swiping everywhere I go for these 3 basic reasons:

1. Cash purchasers are extremely conscious of the exact amount that they spend.

Cash makes you very conscious of exactly what your cash flow is and where your money is going, which is the key to any budgeting plan. Dave Ramsey, the author of the Total Money Makeover: A Proven Plan for Financial Fitness, agrees. “Pay for everything in cash and you will be on track to controlling your budget in a tangible way,” says Ramsey.

In the aforementioned book, Ramsay outlines a radical plan for paying off debt which has cash at its core. He believes that if you are going to make a purchase at a particular price point, you should actually physically take that money out of the bank to do so. It is a solid tip for those of us who have trouble sticking to a budget when credit cards become involved.

Have you ever bought something for “around $200” that turned out to cost almost $300? Our normal response is to try and self-justify and not let it bother us, writing it off as just a “one-time thing”. Instead, we should bring $200 in cold, hard cash to ensure that it never happens again.

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2. Credit card users can unconsciously pay more just by having their card handy.

According to an article in Consumer Reports, only 5% of spenders have the discipline to spend the exact same amount of money using credit as they would with cash.

Why is that number so low? Richard Feinberg of Purdue University offers an answer in his fascinating article “Credit Cards as Spending Facilitating Stimuli: A Conditioning Interpretation” in the Dec. 1986 edition of the Journal for Consumer Research. In the experiment, some participants were asked how much they would like to pay for a service while a credit card logo was visible to them during the conversation, while others were asked when the logo was not present. Feinberg concluded that “willingness to pay was directly correlated to the visibility of common companies and was significantly greater when logos were present”.

This seems to suggest that there may be a feeling of power, importance or significance that drives consumers to pay less attention when paying with a credit card. Contrast this with the idea of pulling cash out of your wallet, and it is easy to see why cash is king when it comes to responsible spending.

3. A monthly budget is hard to stick to with a credit card.

The hardest budget category for Americans to hit is actually labeled “miscellaneous”. The basic reasoning behind that statement is simple: most of us are living far beyond our means.

Wouldn’t things be easier if we actually set aside cash to cover each of our budget categories?

Susannah Snider, personal finance editor at U.S. News, certainly seems to think so. “If you have an issue with credit card debt, consider budgeting with cash”, says Snider, who urges the sense of ownership and control that comes with setting aside a particular amount for each budget category.

Instead of doing your budget on the back of an envelope, why not write “food”, “miscellaneous” and “car maintenance” on the front of an envelope and withdrawing cash from the bank to place inside. That way, you can keep track of the money that you are spending and it will force you to go back to the bank to get more money in order to go over budget, making you acutely aware of your issue. According to a Chase study, 70% of Americans dislike going to the bank more than once a week. Why not use statistics to your advantage and recognize your strong aversion to continually visiting your financial institution?

While I cannot outline all of the benefits of using cash for a monthly budget here, I do believe that it can truly revolutionize the way you look at your finances. So stop swiping today!

Reviewed November 2019

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