Welp, I know with that title I’ve just opened a can of worms. I can almost feel the virtual tomatoes hitting the screen. DUCK!
I know the arguments. I hear them all.the.time.
“I use my credit card safely!”
“I paid for my whole vacation by playing the credit card system and earning cash back!”
“I can’t use cash – I’m safer by using my debit card…cash burns a hole in my pocket.”
Having used a cash budget system from day 1 of our marriage, I have to say that I’ve heard every single argument out there for not using cash. So, today I’m going to tell you WHY cash is better than any plastic card you can swipe.
First, let me tell you that I KNOW you’re going to argue with me. I’m going to state facts and studies. But you’re going to say that you don’t fit that category. And that’s fine. But also realize that MOST people do fit into the category of not being able to behave with money. So when I cite stats, I’m telling you what studies and surveys have told humankind to be true.
You’ll spend less when you use cash.
This is a proven fact. People spend less when they use cash. It hurts for that money to leave your hand. It makes you think twice when you hand it over to a cashier. It hurts worse to see that money dwindle from your envelopes. (here is the wallet I use) It’s PERSONAL.
A piece of plastic isn’t that personal. It doesn’t even have a picture of a person on it (usually). It can’t be colored on or have a chain letter written on the back.
Studies show that when you eat out and use plastic, you’ll spend about 47% more than if you used cash.
Let’s face it. If you have $5 for lunch in cash, you have $5 in cash for lunch. Period. They’re not going to give you $8 worth of food and let you leave without paying for it. But maybe you have a $3 cushion in your checking account, so you swipe that piece of plastic and get the apple pie.
You cannot spend more with cash. Well, you might. But chances are, you won’t do it more than once. If you have $400 for food and you blow through it the first week because you have cash – then you have to make do the rest of the month. Chances are high that you won’t do it again next month. It’s called learning responsibility for taking care of money.
You can’t play the system.
I know lots of people are convinced they are “playing the system” with their credit card – earning points and paying their bills off each month. But the truth is, you’re not playing the system. If you were, these credit card companies wouldn’t be SO successful.
Barry worked in the credit card industry for years. He learned that the majority of people cannot behave with plastic. While you think you’re doing well, there are millions of other people suffering because they tried to “play the system” and it backfired on them in a bad way.
Sure, you can charge it all and pay for it later 100%. But what if…what if all of your cars die at the same time? What if there is an accident and you end up with more medical bills than you can count? We’ve seen it happen. And all those people thought “that won’t happen to me.”
Cash is safe
Sure, you can get robbed. Chances are, a robber on the street doesn’t know you have a cash budget in your pocketbook. And while your cash might be gone in an instant, the time you’ll spend on the phone cancelling all your credit cards will be harder for you to swallow than $500 stolen.
A special note: we are not completely anti-plastic, lest you think we are hypocrites. We do have a debit card which we use to purchase gas with (budgeted ahead) and online purchases (paid for from our budget). It’s also what we use to book vacations and other things online. The bills that we cannot pay cash with, are paid directly from our checking account through a bank program. There is a time to use debit, but we prefer cash. Debit is a million times better than credit because it’s your actual money (do not include overdraft protection).
We also have a credit card. GASP!!! I know, you’ve already passed out on the floor. But the truth is, we don’t use it to “play the system” or “earn cash back.” We have ONE credit card that’s used solely for large purchases that Barry must make for his work. The company he works for only reimburses for travel expenses which can easily go into thousands of dollars a month. When a purchase like that needs to be made, we do use a credit card, and then pay it off immediately when reimbursed. Chances are, he won’t “overpurchase” when someone else is footing the bill. 😉
HOWEVER, we have proven that we don’t even need that. We’ve only had it in the last year, and went 11+ years doing the same thing without one. And it it went away tomorrow, I’d be Jim Dandy fine and not blink an eye.
Why do you think cash is better than plastic?
I agree that cash can be better overall, especially if your behavior has demonstrated you are not responsible with credit. Probably the best argument for cash is the first one you presented – you are likely to spend less. However, you did say you were going to present facts and stats, so let me present a few:
1. My credit scores, all of them, are over 800 and have been for years.
2. The last time I didn’t pay all of my credit card debt in full for a month was over 20 years ago, when I was young and stupid (no, it really was that, not trying to simply live).
3. Based on a 5% down payment, I was approved for a mortgage up to a certain amount, and then I used considerably less than the amount approved when I bought my house.
4. I keep multiple savings accounts with money in them for different purposes, essentially bucketing, including vacation. I don’t spend the money in an account until I know A. I have enough saved to pay in full and B. there will still be some left over in the account.
5. Credit cards, if you have good credit, often have rewards and cash will never replicate that. When the reward is something like 2-3% cash back and you can redeem saved up rewards to fully pay a monthly bill, that is very nice. The spending you were going to do anyway, likely over months since you’re a responsible spender, just saved you money.
All that said, I found this page because I’m looking at the idea of switching to mostly cash. I’m looking at what it would do to my credit score (I don’t have any big purchases planned, but you never know when you may need it), and I’m not thrilled with giving up the rewards, especially cash back saving me money by paying a bill. There’s also the fact that paying cash can reduce spending, but that’s basically the only benefit of cash if you’re a responsible spender to begin with. And yes, there’s the nebulous math of how much you save in overall spending if you’re mostly/all cash versus the cash back and other rewards on credit cards. But I’m good at tracking my spending so I may be able to figure it out.
There is another option for online purchases: prepaid gift cards. I buy a gift Mastercard or Visa that will cover one to three months of online purchasing. When the card reaches zero, the number is canceled and no fraudulent charges will ever return to haunt. (When the card balance is close to zero, some supermarkets will zero it out as partial payment for groceries.) Some may complain there is a purchase fee: yes, but certain stores give reward points for that gift card purchase and it’s possible to recover the entire purchase fee by redeeming the points! Even if not, the peace of mind is worth it. Just remember, you need to “register” the gift card for free ahead of time to establish a name and address on the card account so online merchants will accept it.
I put my budget on a credit card with cash back rewards and i keep 3 other cards charged with low monthly payments to things like Hulu or Netflix however I use a discover it card for my weekly eating out that is budgeted as well. I account for every expense including how much I can toss into a investor account a month and other factors. If a bill is online and is charged to card that is charged to your bank account automatically it makes no difference because you still need to account for it. Really makes no difference overall. I really think people feel the same impact of losing x% of paycheck or whole paycheck to pay off bad behavior as they do with forking over cash. Paying cards in full and keeping savings leads to healthy credit score and savings along with a possible vacation from card benefits. I charge all bills to a cash back card that combind with my strict food budget and buying premium gas for my car racks in around $10 dollars a month. So I’m making 120 dollars a year from good behavior. If you get stuck carrying a balance the apr kills you. However credit score is needed for everything from renting a car to an apartment to buying a car or a house. It’s just so needed
One more thing to consider carrying money or hoarding it in your home is just not smart, family or friends could steal it, you could lose it in a Desaster like a storm or a flood and or fire, a home break in etc. Plus cash devalues with time which is where keeping it in a high interest savings account or in a investor account building value in stock trades comes into play. Money is worthless sitting around and needs to be put to work to make more money.
Thanks for the advice and input, Joseph. If someone can have a credit card and not be tempted to carry a balance from month to month, all the perks you mentioned are a huge benefit! I know some people struggle with limiting themselves to purchase they can pay for each month. But I love what you said about the rewards you can earn on different credit cards – that can be a real positive for some people. Thanks again!
Julie, HH Team
There are a lot of reasons cash is better than plastic. the main reason for people to think about if it wasn’t better for banks, credit card companies and government they would not encourage you to use plastic. the instant you use plastic it is costing you more than actually price. credit card interest, banking fees for managing card and ATM fees, not to mention you are probably paying some taxes whatever you purchased as well. not always the case with cash. Bottom line your money/ Cash is yours to do what you want with, don’t need big brother watching what you do with it.
Yep – great input. Thanks for commenting!
Julie, Humorous Homemaking Team
Stacy I agree, cash is your best option. I am working on paying debt faster because of my frugal living. I slipped up sometimes, but I am learning from my mistakes.
And that’s what makes mistakes so awesome. 🙂
I made a little clutch with 3 zippered pouches in the center for groceries,miscellaneous and gasoline and 2 long “pockets” to hold coupons or the entertainment funds, etc. I used to just keep the money in the bank envelopes but decided that looked like I had a ton of money to anyone shady that was watching me fumble for the correct envelope. When I determined my gas allotment, the price was higher. If there is still money left at the end of the week, I put it in an envelope at home and let it grow for vacation.
Yup–we’re in the “But . . . .we use it responsibly” camp 🙂 After making HUGE, HUGE, HUGE financial mistakes in my early 20’s I swore off cards forever. I didn’t feel like I could ever trust myself again. My husband, who has always been much smarter than me with money, was of the “Use it and pay it off each month school.” 11+ years later I’ve moved over to his side—except for groceries and our “blow” money–those are still cash.
I’ve seen both sides so I definitely won’t eat you for dinner. 🙂 If I were married to someone like the “old” me I’d still have credit cards banned 🙂
That being said, we are debt free except for our house (recently re-financed into a 15 year that we’re attempting to pay off in 10) and have 6+ mo of living expenses in cash so that helps. I don’t know if I’d be as “ok” with using our cards for the cash back as I would be without those safety systems in place. We pretty much just use the credit card for pre-budgeted things like gas and clothes. We also use them for paying our utilities for more “points”, but then just immediately transfer that from our checking account to our credit card balance the minute it clears.
Though we have never had a balance on our credit cards, we are definitely a credit card family. And when I first read your post I thought, “That’s for them; it’s not for us.” (Actually, at first I wasn’t even going to read it when I saw the title…but then I was curious, I guess). 🙂 But I find my mind continuing to reflect on what you’ve written…especially the idea of spending more with a credit card than with cash. I tend to think of myself as more accountable with the credit card because my husband sees every purchase. And while having no cash in my wallet may stop me from (most) unplanned stops by the Target cafe or Starbucks, it doesn’t help me really evaluate every item I put in my grocery cart. And I probably “waste” a lot more money that way then I would at cafes. Hmm…I guess I’m just saying that this has provided me with some good food for thought. We do not manage our money the way you and Barry do…I’m not sure how much that will change. But I’m so glad that I read this post and it definitely has given me some things to think about and discuss with my husband.
Well, I’m glad. Because when I wrote it I honestly thought “people are going to EAT ME FOR DINNER.” LOL 🙂
I feel the exact same way as Katie! We are in the minority who use credit cards responsibly, and when I have cash, it is kind of my “mad money” that ends up getting used at Chick-Fil-A or Del Taco. BUT, we bought a house a few months ago and had to keep our credit cards at zero while we waited for the loan to close. I took $100 cash to Target, and it was the most carefully I’ve ever spent. We are blessed in that my husband and I are both naturally very frugal and are in a position where we don’t have to keep a super tightly regulated budget, but I find myself reading this thinking, “Why wouldn’t we want to do this and spend less?”
Isn’t it funny how that money in your hand makes you think differently??
Be careful using debit cards on online purchases. If the website is hacked or your debit card number is otherwise stolen, you have no recourse to get your money back, whereas a credit card company will eat the charges and not make you pay for stolen purchases. The bank will not be able to do anything.
I am one of the rare (I guess) people who DO use a credit card and pay it off when it’s due. I treat debit as cash and I budget it just like I manage my cash. I use cash for a lot of things but not everything.
We haven’t found this to be true. Our banks backs our debit card with Visa, so we are offered the same protections as anyone with a credit card. A couple years ago, my card number was stolen and someone made several large purchases online using it. Our bank was SO helpful and super friendly – they fixed it right up for me and all I had to do was sign a couple papers. 🙂
We use a credit union and ours very specifically told us that once the debit card is stolen and used it is like the cash is stolen from you and basically you are out the money. Our credit union also said a credit union is very different from a bank in many ways (mortgages, accounts, etc). I don’t know if that is one of the ways or not or if you use a credit union or a regular bank. I do know that I’ve never heard anyone advising to use a debit card for an online purchase. My credit card number was stolen earlier this year and our credit union did comment that it was a good thing it was just the credit card. They disputed the charges, refused to pay them and shut down that account. If it had been my debit card, it would’ve been lost money and I would have had to get a new debit card.
Dave Ramsey actually recommends to use a debit card. 🙂 We are members of a small, local bank and our cards are backed by Visa. It was a painless process when my number was stolen and the money was quickly put back into our account.
Directly from Daveramsey.com “Dave recommends the use of debit cards for several items such as, Car Rentals, Hotel Reservations, and Internet Purchases. Dave personally carries and uses debit cards for online and phone transactions.”
The only time we have regretted (in 18 years) not having a credit card, was when our van up and died on us while traveling to my brother’s wedding halfway across the country. Ten people to transport back home, and we could NOT rent a vehicle of any sort without a credit card! Nuts! We had to have my in-laws do it for us. Other than that… no problems. : )
That kinda sounds like a horror film. LOL 🙂
Yes! I agree with this 100%. When people ask me how I only spend $500 a month on food (for the 8 of us), the first thing I tell them is I use cash. I have to make careful purchases when I know that is ALL the money I have. When my husband and I decided to try cash for 6 months, we did it with the idea that we could always go back to plastic if that ended up working better for us. That was 10 years ago and we’ve been cash ever since.
You inspire me. 🙂
I know this sounds weird, but credit card is much safer with my husband. With cash, he is tempted to spend and hide it. He says he is more accountable with credit card because he knows I’ll see what he’s been spending on and he’s less tempted to be irresponsible. Debit is a problem, too, because he would even do things like get gas, get cashback, and then only keep the debit receipt and say he lost the original so he could siphon off cash to spend it on things he knows he shouldn’t.
So credit card for us is safest. He has been leaving his credit card (and debit card and cash) at home lately too (until he sees gas is getting low) so he is not tempted to spend take-out while at work.
Ya… I know… we got issues.
But anyways, we have been using YNAB for the last couple of months, and it has been helping SIGNIFICANTLY. Even for me (and I’m already frugal). You can kind of think of it like “virtual envelopes.” So far, we have been trying to get off the “credit card float.” They have videos about that very thing, and it’s really helped my husband to see that, even though we pay off the credit card every month, we are essentially living off NEXT month’s income (rather than aiming to live off LAST month’s income). So it’s really helping us to hunker down and get things in order. So the credit card just becomes another tool, and less likely to be abused.
Thanks for this honest assessment of where you are as a family right now. I’ve heard good things about YNAB from others (although I’ve never used it). Your husband’s irresponsibility with money and hiding things from you is a marriage issue as opposed to a money issue, but I’m sure you already knew that. It is good he is working through it with you and accountability is key. One of the major points I try to convey is that personal finance in a marriage won’t work if you don’t agree. If one of you is giving it your all and the other is cheating in some area(s), that will never work.
I would still caution you on the use of a credit card for the reasons outlined in the post (and many horror stories which I witnessed in my career in the credit card industry). While it may generate more accountability (and that may be worth those risks), it is still a dangerous “tool” which requires a great deal of discipline to behave. Hopefully one day your husband will gain control of his temptations and you will be able to get away from the “float” altogether.
I’m so glad you are bringing up this subject! I have some questions about how you might handle some scenarios……over the years we have tried to use the envelope/cash system. Here are the problems I’ve run into:
One year I mapped out an entire vacation using cash. I did have a credit card, which I used to make all the reservations, but I planned on using our cash once we got to the hotel. When I told the lady at Marriott that I wanted to pay cash, she told me that if I didn’t use the credit card, we would have to pay a $250 cash deposit (which is normally what they use the card for). So, we used the card.
Also, I’ve found that to use a debit card for reservations can sometimes result in the company putting a “hold” on that amount and it affects your checking account.
The 3rd problem with using debit cards is the little problem of someone stealing your number. This year alone, I’ve had my credit card hacked about 5 times. If that would have been my debit card, they would have stolen money directly from my checking account and that would have been a nightmare.
So, how would you address these problems?
I’m really all for cash, but I feel like I have to keep a card for the reasons I mentioned.
Thanks Stacy!
Hey Debbie, this is a FANTASTIC set of issues to discuss. Your experience at Marriott is a common one. What you can do is hold a reservation and the “incidentals” with a card, and then upon checkout pay with cash. The reason a card is required is to ensure if you trash the room things are covered. Same reason they put a hold on your debit card. The same occurs with rental cars and other types of rentals where you are taking something of significant value (equipment rentals, for example). It is simply something to keep in mind that if you use a debit card for reservations, there will be a hold placed temporarily, which is removed after you pay your final bill.
As far as the debit cards and fraud protection, it all depends on the logo on the card. While the law surrounding the issues is in favor of the credit card for protection, the actual practice (and I’ve witnessed it firsthand) is much the same. This article gives what I find to be a pretty accurate summary of what happens if your debit card gets hacked. http://www.bbb.org/blog/2013/11/do-debit-cards-and-credit-cards-hav-the-same-protection/. Like a credit card, anytime you get compromised is a hassle, but you are rarely out of money for any length of time and everything gets replaced pretty quickly and all you end up doing is signing an affidavit.
I agree with using cash. We switched at the beginning of the year to an almost all cash budget. We do use a credit card for specific purchases but it is always paid off. We will not pay interest. I am a spender and this keeps me in check. Thanks for sharing.
You could have said “Why cash is often better than plastic” and this post would be just fine. Heck, it’s fine anyway, if that’s the way you like it. But it’s a fact that, just as you’ve proven that you can handle a credit card responsibly (i.e. without carrying a balance), so can lots of other people. And sometimes, like for the purpose you described, or for online bill paying (safer than debit, and yes, you might as well get points on that doctor bill, since you’re paying it anyway), plastic is actually…um…better. Sometimes wine is better than water, sometimes not. Gotta know when, is all.
I’d go so far as to say that *most* people are not forward-thinking enough to use credit cards without hurting themselves, and I’ve never yet advised anyone to apply for credit cards. Never will. I dint want to be responsible for anybody’s mistakes but my own. But I have one myself. The only problem I really have with what you say here is that you seem to think you are the only ones to figure out how to use modern financial tools to your advantage *safely*. Between that and the orthodontist…well, welcome to the rational middle. I don’t know what Dave R. would say, but I’m with ya. You don’t need to fear looking like a hypocrite just because you found out cash isn’t the only way to do business. 😉
Dave Ramsey actually advises not to pay in advance for medical care.
I totally completely agree with you. We do all if the same things you do. We wouldn’t be debt free (except for our house-which we are working hard to wipe out) if we didn’t use cash and a budget.