How to live a nearly cash-only life
It doesn't have to mean you spurn all of life's conveniences.
This post comes from Kentin Waits at partner blog Wise Bread.
According to Time magazine, the current average annual percentage rate on credit card debt is 15.22%. For folks who aren't disciplined about managing credit card debt or paying off their balances aggressively, the rate is a real eye-opener. All the cash-back rewards, airline miles, and perks in the world can't justify the financial hit consumers take in long-term credit use and interest repayment.
With interest rates on the rise and credit card companies devising ever craftier and creative ways to score a few bucks here and there, isn't it time to consider going cash-only? In 2010, I wrote an article on "6 reasons why cash is still king." Now it's time for a more pragmatic discussion on how to make a cash-only life work for you. Here's how to give a big thumbs down to the credit card companies and go (almost) cash-only. (See also: "5 ways to give cash as a gift.")
Carry cash. Surprise! The first step in going cash-only is to actually get your hands on some of the stuff. It's still green(ish), and it still works like a charm. Take a look at your credit card statements for an average week and see where/how you're spending your money. Take a similar amount out in cash at the beginning of each week, and dispense it to yourself on a daily basis. Consider experimenting with the amounts a little and see if you end up spending less when you're spending paper vs. plastic. Post continues below.
Save receipts. One of the convenient things about using credit is the electronic trail it leaves behind. You can easily track transactions and refresh your memory about expenditures you've forgotten. But cash is a different animal. Get used to saving your paper receipts. I dump all my cash receipts in file folders divided by month and year. A shoe box and a binder clip for each month works just as well. It's not the sexiest way to stay on top of what you're spending, but it works like a charm.
Hold with credit, pay with cash. Going cash-only doesn't have to mean you spurn all of life's conveniences or that you can't leverage the power of credit from time to time. Using your card to reserve a hotel room, a rental car or other service is quick and convenient. Just remember, when you arrive at the hotel or car rental agency, pay in cash -- and get that receipt.
When you do use credit, make it work like cash. We live in the modern world and there are times (unfortunately) when cash just won't work. For online shopping or other cash-adverse transactions, think of your credit card as a friend who's spotting you a few bucks for the very short term. Pay him back quickly. Who says you need to wait until you get your monthly bill to make a credit card payment? There's nothing credit card companies hate more than getting paid back in full each month. I say, embrace the hatred and wear it like a crown.
Don't trade credit card interest for ATM fees. Whether you're paying interest on a credit card or getting pinged by debit card withdrawal fees, using plastic usually means more money out of your pocket. Don't trade longer-term interest for shorter-term ATM fees. Withdraw cash at the beginning of each week from your bank or an affiliated ATM and let that amount of cash guide your purchasing decisions -- without the need for frequent, spur-of-the-moment trips to the ATM.
Remember: Safety first. Cash gets attention. Sometimes that attention is good (ask for a modest discount when you pay for your next car repair using cash instead of credit -- it works). But at other times, pulling out a wad of twenties isn't the best idea. Use your cash wisely, be smart about how much you carry at any given time, and be discreet about who sees it. Organize the cash in your wallet from lowest to highest bill, and keep anything higher than a $50 tucked away in a separate compartment.
There's no question that credit cards can be a great convenience. Anyone who tells you to give up credit completely and permanently is trying to sell an idea that has a very limited real-world application. The key is to use credit responsibly and reserve its use for those occasions when cash simply won't work or will work only through complex and onerous measures (with online purchases, for example). For 95% of the day-to-day stuff, try skipping the fees, late charges, and interest. Rediscover cash.
More on Wise Bread and MSN Money:
My wife and I haven't had a credit card for almost 2 years and haven't used one in close to 3. Guess what, I do online shopping too. No, I don't insert cash into the USB port. I use a Debit/Check card. The one's that have the Visa/Mastercard logo on them. I don't put in my PIN, I run it through the Credit Card system so no one knows the difference. It just debits money from my checking account.
You can live without credit if you want to.
we have decided to go cash only to get out of debt and stay that way. I will never again be a slave to the bank and credit cards. if i need to shop online, i buy a prepaid debit card. set amount, cant over spend, and its not coming out of my checking account. i set up online payments to the utilities through the banks' bill pay system so im not writing and sending checks. everything else is cash. we set an amount for gas, groceries, etc., withdraw that amount, and thats it for the month. if i need more food, then the difference comes from some other expenditure. more food= less gas or whatever. it was hard at first, but its really nice not being beholden to anyone.
Why are there so many thumbs-down marks on posts that describe the significant benefits of responsible credit card use?
Obviously, if you can't spend responsibly, ditch your credit card. But, if you have no problems paying your balance in full each month, a credit card is BY FAR the best avenue.
My wife and I charge everything we are able to our Southwest Visa credit card. We earn roughly $1,000/yr in free flights. We've had the account for six years and have paid ZERO in interest and penalties. We track our credit spending like we would cash spending, and always pay the balance in full.
Yes, we pay $99/yr as an overall account fee, but we still net approx. $900 in benefits.
Credit Cards are NOT the problem...its unstructured, undisciplined card USERS
Pay your balance off in full every month and it wont matter if the interest was 40%
You should have an emergency fund to cover the unexpected...everything else you either need to be able to pay in full or don't buy(exceptions are cars, education and homes but you need different types of loans for those, not cards)
Poor money managers will probably misspend even with cash, they just can't over spend
I use mine multiple times a day...haven't paid CC interest in years and i always take a vacation or two every year with mostly CC rewards!
Try making a budget first off and it will help with tracking your finances he doesn't bring that up. If you learn to budget you wont NEED to track where all your money went. You will KNOW> Also it is HARDER to part with CASH for frivolous purchases. It is easier with plastic cause you can reason it out however you like in your mind as opposed to YOU HAVE TO PAY FOR IT RIGHT NOW. Difference.
You mention carrying travelers checks. The last time I used them (maybe 30 years ago), I discovered that they were harder to cash than personal checks.
What good are they?
I need to add that when I do not use my debit card as described below, I use cash. I have a set amount I take out each month for food, eating out, and misc. expenses. When that money is gone, I stop spending. What a novel idea. That keeps the amount of cash I carry to a minimum, it keeps my spending under control, and I eliminated the need for credit cards.
Pay cash for everything???? Is the author stupid?? ...... I charge everything except my morning tea, when the statements comes in I pay in FULL ..... use "their money" for free ...... if you know when your card billing cycle closes (check statement) you charge the day after and basically have two months till the bill needs to be paid ..... use credit cards for their rewards, double dipping to speak ..... "cashback" by one company for this year was in 3 figures....... the key is to know your limit ... dont go nuts or you'll find yourself in debt ........... (oh yeah ..... I've got half a yrs pay in savings following this method)
This sounds like advise from Davey Ramsey. He recommends paying with cash because it hurts more and you have to stop and think about your purchases before you buy anything. Find out more information by checking out his website...www.daveramsey.com.
I can honestly say his program will only work if you do the steps. There is nothing to buy, no get rich quick scheme here. Just common sense steps. Give it a try, if you don't like having better control of your money, I'm sure there is a credit card company out there ready to take your money!
If credit cards companies dont like when you pay off your balances in full then the HATE me... I NEVER carry a balance... They (Chase) get enough of mu money on mortgage interest and the lack of interest paid on bank account...
In response to 40ish woman and Fan of Dave Ramsey, Debit cards do NOT work like credit cards and this is actually counter to Dave Ramsey's advise. For the most part Ramsey's advice is sound but in regards to travel particularly, you MUST have a credit card. Most people do not keep enough money in their bank accounts to fund themselves like the credit line you get with your credit card. Weekly, we have issues with hotel guests upset about the freeze their own banks put on their money because they don't understand the difference between a debit card and a credit card. Educate yourself, get ONE credit card, and NEVER use a debit card for travel. Do what this article advises and pay with credit and then pay it off immediately.
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