Suze Orman says we should all pay cash
Just say no to companies that are jacking up rates and raising fees.
Suze Orman has a message for credit card companies that are jacking up interest rates, raising fees and otherwise treating their customers badly: Bye-bye.
We don’t need you. We’re going to pay cash.
On her Saturday night show on CNBC, she asked viewers to join her in a Back to Cash movement. “Let’s go back to the good old days,’’ she said. “Let’s go back to the times when you literally paid cash for everything. That’s right. Cash. Stop using your credit cards altogether.”
Like most personal finance writers, Orman in the past has advocated the responsible use of credit cards: choosing the best deals, paying off your balance every month and building a strong credit history in order to boost your FICO score.
Well, forget that, girlfriend, she says. Now it’s time to just say no to banks that are trying to squeeze every penny they can out of us.
On her show, Orman read a letter from Citibank to her director’s wife, raising the interest rate on her card to 29.9 percent, though she had never missed a payment. We’re all getting those letters, and some customers already have voted with their feet, figuratively speaking, canceling their cards rather than pay higher fees and interest rates.
Ann Minch of California went on YouTube to complain about Bank of America raising her interest rate, hoping to spur a debtors’ revolt. Unlike many customers, she also got her interest rate reduced to its previous level and was featured on Orman’s show.
But it’s unlikely we can all go on YouTube and win better credit card terms.
So should we turn to cash?
It’s an intriguing idea. Why do business with companies that treat you badly?
Some businesses give you a discount when you pay cash, because the business doesn’t have to pay interchange fees, amounting to 2% to 3% of the transaction amount, to Visa, MasterCard or Amex.
And, for many people, paying cash means spending less, which is always a good thing.
Financial broadcaster Dave Ramsey has always advocated shunning credit cards and paying cash. “You do not build wealth with credit cards,” he wrote in an article entitled The Truth About Credit Card Debt. “Use common sense. When you play with a multi-billion dollar industry and you think you're going to win at their game, you are naive. You cannot beat the credit card companies.”
But the convenience of credit cards is hard to give up, plus you get extra warranty protection and often rewards such as cash back or airline miles. For those reasons, some people pay for everything with credit cards.
While it’s possible to live without a credit card, it can be difficult, especially if you travel. Debit cards have their own set of problems. Not using any credit at all can make it difficult to get the best interest rates on a mortgage or a car loan.
What would it take for you to give up using credit cards and go back to cash only, or at least cash, checks and debit cards?
These days, credit card companies are acting as if they don't really want our business, especially if we don't carry balances and pay our bills on time, avoiding some of the most punitive fees. Do you suppose they'd change their tune if we all turned to cash?
1. "This example is lousy. You received a good or service for that extra $160. If you bought something you don't need, you only have yourself to blame."
- Chances are you bought those extra things because all you had to do was swipe a card and it's yours. You don't have to worry about that pesky little detail of having enough cash in your wallet. The fact of the matter is that you spent $160 more. Paying with a credit does not register psychologically as giving cash to a merchant and your chances of overspending increase.
2. "The credit card company didn't get $160. They got an extra transaction fee of 2-3%. So $160x3%=$4.80 in extra revenue because you spent more."
- That's not true. The CC company gets that $160 in your payment (during the grace period to avoid interest and collect the "precious" rewards). Plus 42 cents if you mail in your payment :-)
What I have learned today is that the credit card companies sure have people brainwashed. You just THINK you need them, you WANT them, you think they are your SECURITY blanket.
I cannot think of one good reason to NEED a credit card. You can build credit in other ways, if you need to. You can do all the things you do with a credit card using your debit card, like travel and car rentals and such. I've done it, it isn't hard, they don't ask for your first born, sometimes you can even get discounts paying up front.
If you insist on having a credit card, and insist that you pay your balance off every month and you are super human and never forget or make a mistake, then good for you. But most of us are imperfect humans and stuff happens. Better to have your own cash reserves than depend on the credit card companies to bail you out. Believe me, they will charge you dearly for it.
To the_golden1: finally, someone who gets it. We also took the FPU course over the summer and since I started paying cash, I've spent about 20% less than I did using credit cards.
When you spend cash, you're actually giving something away in exchange for what you buy. You embrace the true value of money. It's a lot different than just mindlessly swiping a card. When I have to part with cash, I'm much less inclined to make impulse purchases.
THAT CHECKING ACCOUNT CARD IS A DEBIT CARD, OF WHICH, TRANSACTION FEES ARE CHARGED TO THE MERCHANT( JUST LIKE A CREDIT CARD). THE MERCHANT PASSES HIS EXTRA CHARGED FEES ON TO US BY RAISING PRICES. IT IS ALL SUCH A CONTINUOUS CYCLE.
You can use cash via your checking bank account and still get the benefits of a credit card via the account card which usually has Visa/MC on it. I've been doing that for years; no transaction charges, no interest rates; just gotta make sure you have that cushion in your account.
I agree with many of you who say that credit card use is just fine, as long the balance is paid in full every month. When used this way, credit cards are a great financial tool. In fact, for online purchases, credit cards are almost essential. The rewards are just a nice little extra. So far, none of the fee hikes, rate hikes, etc have not affected me. As soon as that happens, I'm gone.
Unfortunately, some reach a point that the ONLY way to "put food on the table" is to charge it. That is very bad, but a reality to many. Aside from those in THAT situation, get a rewards-type card (Discover, etc.) and just pay off your card each month and you won't give a damn what interest rate the card is charging because YOU won't be paying it anyway...the card will be PAYING YOU. But that takes DISCIPLINE to live within your means and NOT spend the money needed to make that monthly balance payment; some folks got it, and some don't.
Cash or debit cards are the smartest way to go. Unfortunately, if you want to buy a house you need very good credit and a lot of cash. You're probably better off buying one of those store cards and paying off the balance every month.
My plan... pay off debt and get a Lowe's card. Pay off the balance every month to increase my credit score.
I can't wait until I'm financially free!!!!!
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