I don’t use credit cards to pay for things. It is partly due to my credit card issues in the past and I am also not a fan because of the behaviors it produces in me. Recently, I was told by my girlfriend that I am wasting a swipe when I use my debit card and not my credit card. I haven’t charged anything to my credit card since 2014. I mainly chose to do so because I don’t want to go back into debt. I would say that Dave Ramsey (I don’t know or endorse him) did influence me a lot on this topic, but I haven’t listened to him lately and the feeling and urge to swipe has come back.
Every time she says it, it rings truer and truer, but then I have to go back to some of my basic principles of why I don’t use credit cards. I have three major reasons for using a debit card/cash versus credit cards.
- Those who swipe tend to use 12% -18% more, this applies to debit and credit cards. There is a “swiping effect” and the theory is that when you swipe, you are desensitized to the transaction of money versus handing over cold hard cash and getting change back. So, you are in essence saving 15% (I averaged 12 and 18). 15% savings is better than any card cash back program that I have ever heard of. If you find such a card, please let me know, I will be glad to sign up and use it! So, with a debit card, you will only spend the money you have, but with a credit card you could potentially use more money than you have and run a deficit. So, you do potentially save money by using a debit card, but you would be better served to use cold hard cash!
- I have heard these voices in the back of my head and I am sure you have too. You go to buy something and you think, I’ll buy a couple of these, they’re on sale, I like them, whatnot… I will get cash back and then the extras that you bought are sitting around collecting dust. It’s easier to spend more money when you think, I’ll get 1% or 2% back and I don’t have to pay for another 30 days. That positive effect of 1-2% outweighs the fact that you overspent by 15% and you don’t need the product. But, when you only have $30 in your back pocket and you are on a cash based budget, you decide, I’ll get enough of this to last me until my next budget cycle or I won’t buy it altogether. The enticement of the 1% does alter your judgement.
- I like the reaction I get when I tell people, I don’t use credit cards to pay for things. They’re usually amazed and some of them state that I am not cash flowing optimally or I’m losing out on certain benefits. But, there is a certain level of satisfaction in knowing that I don’t need a credit card and that I don’t need the points/monies associated with it. I more than make up for it with my savings of 15%. Would you rather have (on a per $100 basis) $15 or $1-$2? Multiply that by 10 or 20, because it is possible to charge a couple thousand dollars on your credit card in a given year. That’s a large difference of $150/$300 versus $10/$20, respectively. Ding ding ding!!! Use cash as much as you can, it will save you money.
But, you’re losing out Peter… I don’t think I am and there are certain situations where you need credit cards to rent a car or place a hotel room on hold, I would recommend credit cards in those situations. Reserve the car or hotel room using the credit card, but when you check-out, pay with the debit card. You won’t overspend and you won’t be tempted to spend more to gain a marginal 1% or 2%.
To totally rid your desires to use credit cards, try this nice little hack, use a credit card that doesn’t have any perks. Just a regular old credit card. I have one of those, I don’t use it because it doesn’t “beckon” me to use it. I know in cases of dire emergencies, I can whip it out and use it, but other than for emergencies and placing holds on hotels/cars. I don’t have the “urge.” Join the revolution.
(Legal disclaimer: I am not a financial planner, I’m a blogger).