The Money Mustache Community
Around the Internet => Antimustachian Wall of Shame and Comedy => Topic started by: FireLane on February 10, 2016, 08:24:12 PM
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I knew a lot of people have credit-card debt, but I was shocked by just how many carry it around like a ball and chain their whole lives. Mustachianism has a long way to go before it breaks into the mainstream. From Bloomberg News:
http://www.bloomberg.com/news/articles/2016-02-09/americans-can-t-help-themselves-from-borrowing-more-on-credit-cards
About 35 percent of those aged 25 to 50 with credit cards are “convenience users,” who pay off their balances each month. The majority, whom researchers call “revolvers,” carry debt forward from month to month and usually pay high interest charges in the process.
I've never carried a balance on my credit cards, does that make me the freak? Is it that hard to not spend money you don't have?
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I've never carried a balance on my credit cards, does that make me the freak? Is it that hard to not spend money you don't have?
My first credit card was as joint holder with my dad when I was 14 years old. From the beginning, he explained to me that a credit card is just a convenient way to pay for things without having to carry cash, and it also lets you postpone really paying for the item for around 30ish days (depending on how soon the monthly closing date is). I didn't even take it as a rule, but just as the way these things worked, that I could use it to buy what I needed, but I also needed to review the statement and give my dad the cash (or check) covering all of my charges before the payment due date every month. Ironically, that account was closed by the lender a dozen years later, when I no longer used it, because my dad charged around $40 to it and just never paid the bill.
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as joint holder with my dad when I was 14 years old...
I never held a joint with my dad!
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I would have actually expected the percentage of revolvers to be higher. I wonder if this is per person or per card. Someone who pays off five cards each month in full while carrying a balance on another card should still be classified a revolver.
...and I just realized I'm a revolver right now. I have debt on a home depot credit card, 0% apr for another year or so, and technically have cash in hand to pay off at any time. But I'm still carrying this debt from month to month.
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I still run into people who insist they're supposed to carry a balance in order to have a good credit score. One of them recently was one of my employees who is looking to close on a house soon.
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What does carry a balance mean, I do, and I think its smart.
So month 1: spend money, get 1% cash-back from bank.
month2 : spend money, get 1% cash-back from bank. Automatically pay off month1 when needed to pay interest.
REPEAT forever... never pay a cent in interest, everything's 1% cheaper.
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What does carry a balance mean, I do, and I think its smart.
So month 1: spend money, get 1% cash-back from bank.
month2 : spend money, get 1% cash-back from bank. Automatically pay off month1 when needed to pay interest.
REPEAT forever... never pay a cent in interest, everything's 1% cheaper.
Huh? I'm not sure what you're saying, but if you mean that you charge your purchases and then pay off the balance after the closing date but by the payment due date, then that is not carrying a balance. That is what is referred to in the article as "convenience use."
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What does carry a balance mean, I do, and I think its smart.
So month 1: spend money, get 1% cash-back from bank.
month2 : spend money, get 1% cash-back from bank. Automatically pay off month1 when needed to pay interest.
REPEAT forever... never pay a cent in interest, everything's 1% cheaper.
Huh? I'm not sure what you're saying, but if you mean that you charge your purchases and then pay off the balance after the closing date but by the payment due date, then that is not carrying a balance. That is what is referred to in the article as "convenience use."
Yup, that was what my first comment about what carrying a balance is, I was thinking the balance of my credit card is always greater than 0, so I thought that counted, but thinking about it.. I was wrong.
Hmm, that's the second time I've had to admit to being wrong on this forum today.. can I claim that I feel sick?
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What does carry a balance mean, I do, and I think its smart.
So month 1: spend money, get 1% cash-back from bank.
month2 : spend money, get 1% cash-back from bank. Automatically pay off month1 when needed to pay interest.
REPEAT forever... never pay a cent in interest, everything's 1% cheaper.
Huh? I'm not sure what you're saying, but if you mean that you charge your purchases and then pay off the balance after the closing date but by the payment due date, then that is not carrying a balance. That is what is referred to in the article as "convenience use."
Yup, that was what my first comment about what carrying a balance is, I was thinking the balance of my credit card is always greater than 0, so I thought that counted, but thinking about it.. I was wrong.
Hmm, that's the second time I've had to admit to being wrong on this forum today.. can I claim that I feel sick?
LOL, sure :-) In that case, I fully agree with you that convenience use -- racking up the credit card rewards but never paying interest -- is very smart!
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What does carry a balance mean, I do, and I think its smart.
So month 1: spend money, get 1% cash-back from bank.
month2 : spend money, get 1% cash-back from bank. Automatically pay off month1 when needed to pay interest.
REPEAT forever... never pay a cent in interest, everything's 1% cheaper.
Huh? I'm not sure what you're saying, but if you mean that you charge your purchases and then pay off the balance after the closing date but by the payment due date, then that is not carrying a balance. That is what is referred to in the article as "convenience use."
Yup, that was what my first comment about what carrying a balance is, I was thinking the balance of my credit card is always greater than 0, so I thought that counted, but thinking about it.. I was wrong.
Hmm, that's the second time I've had to admit to being wrong on this forum today.. can I claim that I feel sick?
LOL, sure :-) In that case, I fully agree with you that convenience use -- racking up the credit card rewards but never paying interest -- is very smart!
I've never paid interest on a credit card in my life. I was also very late in getting into the cash back/points game with credit cards. I'd only use it when a debit card wasn't accepted or the item/service was too expensive for the debit card limit. I was always nervous about using them. Now it feels like I'm leaving free money on the table if I don't pay with a credit card.
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I have a friend who is convinced that a great way to build credit is to get a new card, ring up a few thousand on it, cut the card up, and then auto-pay the minimum balance forever (or however long it takes to actually pay off.) I tried to convince him otherwise, w/o success. Oh well. He's really poor and lives paycheck to paycheck as well. :(
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I think a lot of people start out using cards for convenience use and then it slowly drifts into revolving debt. Once people live with revolving debt for awhile it becomes more comfortable, so they let the debt get a little larger and larger until they realize they are paying minimum balances in the $100's and their debt isn't really shrinking. I think it is really important to track your cc balance just like you would cash and when it reaches a certain level, that's it. It is just a mental shift that you need to make.
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I think a lot of people start out using cards for convenience use and then it slowly drifts into revolving debt. Once people live with revolving debt for awhile it becomes more comfortable, so they let the debt get a little larger and larger until they realize they are paying minimum balances in the $100's and their debt isn't really shrinking. I think it is really important to track your cc balance just like you would cash and when it reaches a certain level, that's it. It is just a mental shift that you need to make.
Yep, that's where I was a few years ago...glad I woke up!
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According to the Federal Reserve Bank in Boston about 72% of adult Americans have at least one credit card. The 65% who carry revolving credit card debt is a subset of the credit card carrying population, therefore just under half (46%) of Americans carry a revolving debt.
That seems really high. When I was young, and married to a spendthrift, we had revolving debt occasionally. Now I never do unless it's financially prudent (0% rate for money we were already planning on spending for example).
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I have never paid a cent of interest on a credit card.
I once missed my payment in college by a few days (when we had to send in *gasp* checks), and I called to apologize and they took the interest off.
I have carried a balance month to month, but it was on a 0% card, so that was part of the plan of using a credit card as a tool.
Mostly I charge to high heavens and then pay it off. Cash doesn't come with rewards. I don't understand why anyone who is responsible with money would use it.
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Most of my younger friends carry revolving debt and it just seems normal to them, like part of life as an adult. I fell into the trap myself when I was at the tail end of being a SAHM and had one too many unexpected emergencies that we didn't budget for. When I first paid it off I was scared of CC, but felt bad that I was missing out on the free money, so I have learned to use them responsibly. But I need something like Mint to keep daily track of the balance.
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posted this in another thread as well....
Just think about it...from my actual numbers
Gross around 43k, 10% to 401k, less medical and taxes, my take home is 1060 bi-weekly or about $27,500 annually, which is about $2300/month
so...2300/month
mortgage 557
electric/gas 120
cable internet 120
water 50
cell 40
car insurance 70
car payment 300
groceries 300
gas 60
gym 10
alcohol 20
dining 40
netflix 8
Leaves about 600/month on paper to save or spend. In reality, most people's budgets for mortgage, groceries, dining, alcohol, and cell phone are probably higher. Add additional expenses with shopping and entertainment and you're probably spending every dime you make. A live concert here, a movie there, a little vacation over here, a couple of weekend roadtrips here....boom...you have nickel and dimed your way to carrying $3k+ in credit card debt at the end of the year, every year, which just adds another monthly bill to your list and the cycle continues. I really believe that most people don't know how to live within their means and not spend more than they make.
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I am ashamed to admit I had 15 years of constant credit card debt. Fortunately 12 years ago I got serious and paid it off, only slipping once when I accidentally underpaid a bill by $20.
So I am surprised that as many as 35% of the population do pay it off completely each month. I would have thought it is closer to 10%.
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I believe it, and it's upsetting to me, and there's not much to be done about it other than just educating people that it's a bad deal. I am glad that the rules about credit card statements changed within the last few years to require that they show how long it will take to pay off a balance when just paying the minimum, and that the minimum payment must now actually result in paying off the debt in a (somewhat) reasonable time.
DH and I were both raised to only use credit cards for convenience use (rack up points, miles, whatever, then pay off in full when the bill comes).
Now, how can we get rid of predatory lenders and payday loan shops? I hate those things with a passion...
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I've carried balances most of my adult life, and only flirted with that magical 0 number for brief periods in the last couple of years when I started getting my shit together. Investing always took priority over being debt-free, especially after I managed to squeeze everything down into the 0-3% range. Ex: just parked $4K on a new card ($0 fee, 0% APR for 15mos) rather than pay it off, because I perceived compelling opportunities to front-load this year's investments. Not everyone's favored approach, but works OK for me. I keep my SR high by keeping cash out of reach, and sometimes that means using credit to level out the bumps. As long as the math works out, I'm happy, and overall returns have justified it so far.
I do anticipate a full payoff in the next 3-4 months, and since I'm looking at an overall deleveraging as I coast in toward quasi-FIRE, I'll probably stay at least near 0 for the next year. Then, when my income drops, I'll go to a strict monthly payoff policy.
All that said, I remember how much it sucked to be on the wrong side of compound interest and I can genuinely empathize with people in that boat. It's easy to fall into the trap of "needing" things that you can't afford, and running up balances just to feel happy and comfortable, doing your best to ignore the eventual pain. All I can say is, the more people hear about MMM/LBYM/etc, the more of them might have a chance of revising their strategy and escaping the hole. There but for (whatever made me finally say "enough") go I, you know... I'm no better, I think, but I got here, and I think that means anyone can.
I believe it, and it's upsetting to me, and there's not much to be done about it other than just educating people that it's a bad deal.
edited to affirm this
Hear, hear. I do believe that's the main solution.
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I have never paid a cent of interest on a credit card.
I once missed my payment in college by a few days (when we had to send in *gasp* checks), and I called to apologize and they took the interest off.
I have carried a balance month to month, but it was on a 0% card, so that was part of the plan of using a credit card as a tool.
Mostly I charge to high heavens and then pay it off. Cash doesn't come with rewards. I don't understand why anyone who is responsible with money would use it.
Simplicity
Control
Even if you are good with money, using cash systems can force you to spend less.
Studies show that people spend more with credit than cash, and I assume that means even responsible people.
It's a lot simpler. Even with cash-back cards, or mileage cards (we have both) where you get a benefit, occasionally the bank screws up the auto-payment, then you have to call the CC company, call the bank, resubmit the forms on line or in person, get the interest charge taken off.
I mean, that sort of thing has happened at least a few times in the last 5 years.
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Simplicity
Control
Even if you are good with money, using cash systems can force you to spend less.
Studies show that people spend more with credit than cash, and I assume that means even responsible people.
Probabilistic and deterministic statements are fundamentally different things, so be careful about conflating the two.
The average person has been shown to spend more when using credit. This does not mean everyone helplessly slides into consumasuckarism the second they put plastic in their wallet, least of all a mindful and goal-oriented accumulator with his/her eye on a 'Stache target.
It is also true that less cash in the bank and more in the stock market means tangible gains over time. If, and only if, the cost of the above (mistakes, added spending, etc) exceeds those gains, can it be said that credit is a net negative.
Is it so for many people? Yeah. Am I guaranteed to be one of them? Not by any means.
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I use credit cards more than debit because of the security, if something happens, it's their money first before mine.
It's also a good way to track spending versus using cash, keeping receipts, I can see my behavior.
The only interest I had was some $2-10 payment for a late payment or something many years ago. That was because I didn't set up auto-pay. Now it's automatic, never a missed payment.
In my mid-20s and never had credit card debt. I honestly don't even know what credit card debt really is or like.
Articles like these just make me think they're trying to scare people. News articles/findings are always trying to find ways to grab attention, and those statistics aren't (usually...) accurate. I don't think it's that bad...or maybe I don't find myself surrounded by people with uncontrolled spending habits.
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Studies show that people spend more with credit than cash, and I assume that means even responsible people.
That always has struck me as odd. I rarely whip out the CC or debit card for anything except stuff I need (groceries, gas, home improvement project stuff), but once cash hits my wallet it flows out like water, usually on stupid incidental purchases. In general, I grab myself a $20 when grocery shopping on the weekend and that's my "allowance" for the week for grabbing a drink out of the vending machine, lunch out 1x a week, etc. To my mind, cash is already out of the bank balance, whereas anything else comes out of that money. Silly, maybe, but just how I've always been.
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Studies show that people spend more with credit than cash, and I assume that means even responsible people.
That always has struck me as odd. I rarely whip out the CC or debit card for anything except stuff I need (groceries, gas, home improvement project stuff), but once cash hits my wallet it flows out like water, usually on stupid incidental purchases.
+1 for me. If they took a closer look at this behavior between generations, I wonder if they would see a discrepancy. I became an adult in the age of CCs being common, things like Mint, YNAB being popular etc... and I find that cash is easier to 'lose.'
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Studies show that people spend more with credit than cash, and I assume that means even responsible people.
That always has struck me as odd. I rarely whip out the CC or debit card for anything except stuff I need (groceries, gas, home improvement project stuff), but once cash hits my wallet it flows out like water, usually on stupid incidental purchases. In general, I grab myself a $20 when grocery shopping on the weekend and that's my "allowance" for the week for grabbing a drink out of the vending machine, lunch out 1x a week, etc. To my mind, cash is already out of the bank balance, whereas anything else comes out of that money. Silly, maybe, but just how I've always been.
Same here. I'm a bit of a garage sale addict, so cash is way easier for me to blow through than credit. I go to stores and I'm like "look at all this overpriced crap, I guess I'll just go home with the groceries i really need". Then I go to garage sales and I'm like "shit, I've got 2 leatherman tools, but here is another one for only a dollar so I've go to get it before someone else does!"
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Studies show that people spend more with credit than cash, and I assume that means even responsible people.
That always has struck me as odd. I rarely whip out the CC or debit card for anything except stuff I need (groceries, gas, home improvement project stuff), but once cash hits my wallet it flows out like water, usually on stupid incidental purchases.
+1 for me. If they took a closer look at this behavior between generations, I wonder if they would see a discrepancy. I became an adult in the age of CCs being common, things like Mint, YNAB being popular etc... and I find that cash is easier to 'lose.'
Me too. If I have $100 in cash, it disappears so fast and I have no idea where it went.
But a CC it comes back in a giant list of shame.
I'm 34...
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Studies show that people spend more with credit than cash, and I assume that means even responsible people.
That always has struck me as odd. I rarely whip out the CC or debit card for anything except stuff I need (groceries, gas, home improvement project stuff), but once cash hits my wallet it flows out like water, usually on stupid incidental purchases.
+1 for me. If they took a closer look at this behavior between generations, I wonder if they would see a discrepancy. I became an adult in the age of CCs being common, things like Mint, YNAB being popular etc... and I find that cash is easier to 'lose.'
I find this also. If there is cash in my wallet, I tend to spend it. With a credit card, I'm definitely more thoughtful.
I grew up with the idea that a CC balance was to be paid in full, every month. My first CC was a joint with my dad and I remember him telling me as we were filling out the paperwork at the credit union "if you miss a payment on this, you will be messing up MY credit as well as your own, SO DON'T MISS A PAYMENT." I got into the habit of not missing payments and I guess never really regarded credit cards as free money or a loan (which I think are the viewpoints that get some people in trouble), just a different version of cash (that is, you have to have the money on hand to spend it).
I had a surprise moment in grad school when another student in my program said she would be amazed to learn than any of the grad students in our department did NOT carry credit card debt. I wasn't quite sure what to say to that as not only did I not have credit card debt, I had also paid off my student loans from undergrad the previous year, was on track to max out my IRA contributions for the year (and had been doing so for a couple years at that point), and had never really felt that CC debt was something I was in any danger of incurring. Sure, my savings rate was not super high and I had to live pretty frugally, but I had all the basic necessities of life and could think of a few areas where I could trim expenses further if I really needed to. I had sort of assumed most of us were in a similar boat but her comment got me thinking that maybe that was not the case. I will say after she said that I sort of started scrutinizing the lifestyles of students that were always complaining about being broke/not having enough money and sure enough, they tended to travel more, go out for dinner/drinks more, and live in slightly fancier apartments. So I guess that's where their potential CC debt was coming from.
Another (frugal) friend and I once tried to help a mutual friend who was having funding problems figure out a budget. It was atrocious. First, he hadn't been in the habit of tracking expenses much. We finally got some numbers written out for current expenses and the other frugal friend and I were making sensible (to us) suggestions like "gee, you are spending $600 a month on groceries, perhaps you should cut back on steak a little, or at least only buy it on sale?", or "hey, you know we can ride the bus for free, right? How about doing that instead of driving to campus every day, then you can stop paying for parking and save yourself gas money?". Every suggestion we made, he had some reason why that was not going to work or why he did not want to live like a "poor person". Of course, of the three of us, he WAS the poor person, as he was something like $50k in debt while the other frugal friend and I both had a positive net worth. And hello, we were in grad school, one of the few times in your life when it is 100% socially acceptable to be poor! I haven't kept up with him a whole lot since we finished school, but from what I have heard he is basically still on the same track...he has at least moved to a lower COL area so perhaps that has slowed the unsustainability somewhat.
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Studies show that people spend more with credit than cash, and I assume that means even responsible people.
That always has struck me as odd. I rarely whip out the CC or debit card for anything except stuff I need (groceries, gas, home improvement project stuff), but once cash hits my wallet it flows out like water, usually on stupid incidental purchases. In general, I grab myself a $20 when grocery shopping on the weekend and that's my "allowance" for the week for grabbing a drink out of the vending machine, lunch out 1x a week, etc. To my mind, cash is already out of the bank balance, whereas anything else comes out of that money. Silly, maybe, but just how I've always been.
Same here. I find those studies suspicious. I don't believe it. I also don't see how it would work, logistically. When I'm in a store I pick out what I'm buying, then go to the checkout and pay. That's when I decide how to pay. How would the payment method affect what I pick up, when that happens before? Would I see the wad of cash and go put the chocolate back, but not if it was a card? Or would I have to be thinking that I was paying with cash before I walked in, and that would make me pick up less stuff?
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Studies show that people spend more with credit than cash, and I assume that means even responsible people.
That always has struck me as odd. I rarely whip out the CC or debit card for anything except stuff I need (groceries, gas, home improvement project stuff), but once cash hits my wallet it flows out like water, usually on stupid incidental purchases. In general, I grab myself a $20 when grocery shopping on the weekend and that's my "allowance" for the week for grabbing a drink out of the vending machine, lunch out 1x a week, etc. To my mind, cash is already out of the bank balance, whereas anything else comes out of that money. Silly, maybe, but just how I've always been.
Same here. I find those studies suspicious. I don't believe it. I also don't see how it would work, logistically. When I'm in a store I pick out what I'm buying, then go to the checkout and pay. That's when I decide how to pay. How would the payment method affect what I pick up, when that happens before? Would I see the wad of cash and go put the chocolate back, but not if it was a card? Or would I have to be thinking that I was paying with cash before I walked in, and that would make me pick up less stuff?
For me it's stuff like "oh, I'll go get a drink from the vending machine....no cash...ooops, no I won't." Or pull into gas station, "I'm hungry, maybe I'll get a snack...oops, no cash, not running a card through for a bag of chips." Hence, I try not to carry a lot of cash, for financial and waistline reasons.
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Studies show that people spend more with credit than cash, and I assume that means even responsible people.
That always has struck me as odd. I rarely whip out the CC or debit card for anything except stuff I need (groceries, gas, home improvement project stuff), but once cash hits my wallet it flows out like water, usually on stupid incidental purchases. In general, I grab myself a $20 when grocery shopping on the weekend and that's my "allowance" for the week for grabbing a drink out of the vending machine, lunch out 1x a week, etc. To my mind, cash is already out of the bank balance, whereas anything else comes out of that money. Silly, maybe, but just how I've always been.
I think this is where personality is the key -
I have cash, and I keep it forever. I am slow to spend cash. If I go to the grocery store with $70, then I carefully spend less than $70.
If I use credit or debit, I'm more likely to spend more. (I get around this with a list, or just by not shopping.)
Everyone is different, but I was explaining why many people would use cash instead, even people who are "good with money" - using credit to get rewards doesn't always make sense. It's a personality thing.
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Cash doesn't come with rewards. I don't understand why anyone who is responsible with money would use it.
Simplicity
Control
Another big one: privacy. Those credit card rewards aren't free; they come at the cost of letting marketers, the government, etc. pry into your spending habits.
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Cash doesn't come with rewards. I don't understand why anyone who is responsible with money would use it.
Simplicity
Control
Another big one: privacy. Those credit card rewards aren't free; they come at the cost of letting marketers, the government, etc. pry into your spending habits.
"Hey Bob, look at this guy: grocery, home depot, Shell. Grocery, home depot, Shell. Oh, a restaurant. Then...Grocery, home depot, Shell. What a loser!"
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I have cash, and I keep it forever. I am slow to spend cash. If I go to the grocery store with $70, then I carefully spend less than $70.
If I use credit or debit, I'm more likely to spend more. (I get around this with a list, or just by not shopping.)
I suppose that's a natural limit on it, but also don't see the point. If I need milk, bananas and eggs for the week, but I don't have enough cash on me to buy it all then what have I gained? I go hungry because I didn't carry enough cash? Yes I guess I'd spend less, but I don't see much value in that, I'm not that poor. I buy what I need, how I pay for it doesn't much affect what I decide I need.
On the other hand I never get soda or vending machine snacks. And never feel much need to.
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Cash doesn't come with rewards. I don't understand why anyone who is responsible with money would use it.
Simplicity
Control
Another big one: privacy. Those credit card rewards aren't free; they come at the cost of letting marketers, the government, etc. pry into your spending habits.
"Hey Bob, look at this guy: grocery, home depot, Shell. Grocery, home depot, Shell. Oh, a restaurant. Then...Grocery, home depot, Shell. What a loser!"
"hmm, it appears he eats food. We must be able to use that against him somehow..."
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Another big one: privacy. Those credit card rewards aren't free; they come at the cost of letting marketers, the government, etc. pry into your spending habits.
I figure they are spying on me anyway. Might as well benefit from it.
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Some things about this article don't quite sit well. For example, "the majority, whom researchers call “revolvers,” carry debt forward from month to month", but the median balance is <$3k for all age groups. Not entirely clear if this is lowered by including "convenience users" (which would make up the bottom 35% of balances). Not that this isn't significant, but that doesn't quite fit the "use every cent available" narrative that is being made. It doesn't amount to minimum payments in the $100's. And the "average consumer's CC debt" is in the $4-5k range. ~10% of a median household income...it's just hard for me to see that as overwhelming.
Not to say it can't be hard to pay off. That happens to be about the balance my bf and I carried for a while right after we moved, on a 0% card. I feel like that was good inoculation against running up a balance in the future. I did NOT like seeing balance on the card I couldn't pay off any minute. Not that I regret the decision, I rather enjoyed living with a bed and chairs and a lamp and food/spices/sauces in my pantry. But I definitely wouldn't put a vacation, etc. on credit. I did pay interest, once, on a different occasion. I traveled to a conference and my reimbursement got held up for stupid bureaucratic reasons. Decided I'd rather pay $5-10 interest (about the cost of a lunch out or 2-3 lattes) than drain my savings below my desired minimum.
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I've never carried a balance on my credit cards, does that make me the freak? Is it that hard to not spend money you don't have?
My first credit card was as joint holder with my dad when I was 14 years old. From the beginning, he explained to me that a credit card is just a convenient way to pay for things without having to carry cash, and it also lets you postpone really paying for the item for around 30ish days (depending on how soon the monthly closing date is). I didn't even take it as a rule, but just as the way these things worked, that I could use it to buy what I needed, but I also needed to review the statement and give my dad the cash (or check) covering all of my charges before the payment due date every month. Ironically, that account was closed by the lender a dozen years later, when I no longer used it, because my dad charged around $40 to it and just never paid the bill.
I love this. Carrying a balance incurs a penalty. For some reason, people see interest not as a penalty but as a term of use...
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I love this. Carrying a balance incurs a penalty. For some reason, people see interest not as a penalty but as a term of use...
It's marketed that way.
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Another big one: privacy. Those credit card rewards aren't free; they come at the cost of letting marketers, the government, etc. pry into your spending habits.
I figure they are spying on me anyway. Might as well benefit from it.
Yup! Each time I look at an item on Amazon, it appears on my FB feed and elsewhere.
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Another big one: privacy. Those credit card rewards aren't free; they come at the cost of letting marketers, the government, etc. pry into your spending habits.
I figure they are spying on me anyway. Might as well benefit from it.
Yup! Each time I look at an item on Amazon, it appears on my FB feed and elsewhere.
And really the only thing that annoys me about that is it still does it when I've already bought it. I bought some nice LL Bean boots a few years ago, read about it online, looked at the reviews, etc etc, then went and bought them in the LL Bean store. I still get frickin' ads about them. They need a "thanks, bought it already" option.
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Mostly I charge to high heavens and then pay it off. Cash doesn't come with rewards. I don't understand why anyone who is responsible with money would use it.
I'm mostly in agreement with this. Cash sort of has a "reward" at retailers that try to pass on the CC transaction fees. We have gas stations and liquor stores that will charge you less if you pay with cash.
The only way I could see myself becoming as responsible with cash as I am with credit is if I would force myself to track transactions in a cash account in my recordkeeping. Otherwise, I can easily treat the stuff as if there are no lingering consequences if I spend it.
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I also don't see how it would work, logistically. When I'm in a store I pick out what I'm buying, then go to the checkout and pay. That's when I decide how to pay. How would the payment method affect what I pick up, when that happens before? Would I see the wad of cash and go put the chocolate back, but not if it was a card? Or would I have to be thinking that I was paying with cash before I walked in, and that would make me pick up less stuff?
I've heard it called "pain of payment." Paying for stuff with cash is psychologically hard, because you have to give the money away. When you pay with a credit card, you "still have" the card afterward, so it's less stressful to make big purchases, and that might tip someone over the edge into buying something extra that they were going back and forth about whether they could afford. Put that way, I know it doesn't make any sense, but marketers have learned all about these little quirks of human irrationality and how to exploit them.
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I also don't see how it would work, logistically. When I'm in a store I pick out what I'm buying, then go to the checkout and pay. That's when I decide how to pay. How would the payment method affect what I pick up, when that happens before? Would I see the wad of cash and go put the chocolate back, but not if it was a card? Or would I have to be thinking that I was paying with cash before I walked in, and that would make me pick up less stuff?
I've heard it called "pain of payment." Paying for stuff with cash is psychologically hard, because you have to give the money away. When you pay with a credit card, you "still have" the card afterward, so it's less stressful to make big purchases, and that might tip someone over the edge into buying something extra that they were going back and forth about whether they could afford. Put that way, I know it doesn't make any sense, but marketers have learned all about these little quirks of human irrationality and how to exploit them.
So Dave Ramsey says. Snark aside, I could understand that some people view money this way. It's definitely not universal. In fact, I don't track spending if I were to use cash because that would involve keeping every receipt and manually running the numbers to see where my dollars flow.
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Related to this, I received a recruiter email for a startup:
Our product is a unique platform that enables retailers to instantly offer a range of alternative credit options for their customers whose credit rating limits their ability to purchase the products/services they need. It's a disruptive technology approach that is truly changing the consumer credit landscape - empowering customers with the ability to purchase what they need, when they need it, and simultaneously solving one of the biggest challenges faced by retailers whose products or services cost more than the average consumer can afford to pay, out-of-pocket.
Yes, that's what we need -- more ways for people to buy shit that they don't need (not to mention that the paragraph is a Buzzword Bingo dream).
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I also don't see how it would work, logistically. When I'm in a store I pick out what I'm buying, then go to the checkout and pay. That's when I decide how to pay. How would the payment method affect what I pick up, when that happens before? Would I see the wad of cash and go put the chocolate back, but not if it was a card? Or would I have to be thinking that I was paying with cash before I walked in, and that would make me pick up less stuff?
I've heard it called "pain of payment." Paying for stuff with cash is psychologically hard, because you have to give the money away. When you pay with a credit card, you "still have" the card afterward, so it's less stressful to make big purchases, and that might tip someone over the edge into buying something extra that they were going back and forth about whether they could afford. Put that way, I know it doesn't make any sense, but marketers have learned all about these little quirks of human irrationality and how to exploit them.
I'm sure that's true, but like I said I don't understand it in practice. Most places I pick my purchase before I pay. So how would this pain keep me from picking up, say a bag of chips? I don't walk around the store thinking "cash, cash, cash!". Although maybe this would change if I did? I pick up stuff, then go ring it up and feel "the pain". But then i've already made the purchase decision. Will it influence me next time, is that it?
So do you need to think about cash the whole time? Maybe visualize a pile of bills? Or carry a stack around in the store and put away some bills every time you pick up an item? I'm sure this might work, but it's hardly the norm.
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I always pay my balance in full each month but if you want to get very technical the moment you make a purchase on your credit card you are in credit card debt the only way to never be in credit card debt is to never make a purchase with a credit card.
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I always pay my balance in full each month but if you want to get very technical the moment you make a purchase on your credit card you are in credit card debt the only way to never be in credit card debt is to never make a purchase with a credit card.
If you want to get really technical money is debt given that upwards of 97% of money is created by banks. But that doesn't move the conversation.
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Weird...
I had thought it was only 50% carry CC debt. Canada is very different for some reason:
Why do you think there is a big difference? More canadians have Credit cards as a percentage, is that it? Is it a regional difference ?-- e.g., southern US states are dramatically different from other states? Marketing or Regulation?
Nearly half of all Canadian credit card holders (46 per cent) are carrying credit card debt, according to a report released Tuesday.
http://globalnews.ca/news/1822207/nearly-half-of-canadians-have-credit-card-debt-report-shows-heres-how-to-get-rid-of-it/ (http://globalnews.ca/news/1822207/nearly-half-of-canadians-have-credit-card-debt-report-shows-heres-how-to-get-rid-of-it/) Feb 2015 (1 year ago)
Canadian Bankers Association - July 2015;
A 2014 survey by the Abacus Data found that 60% of Canadians pay their balance off in full every month..
Of those who do not pay off their card balances each month, 15% pay it off most months and 48% pay a lot more than the minimum payment requirement.
Canadian adults with at least one credit card in 2014: 89%.
Here is the actual report....
http://www.cba.ca/contents/files/statistics/stat_cc_db038_en.pdf (http://www.cba.ca/contents/files/statistics/stat_cc_db038_en.pdf)
Versus USA Stats:
http://www.creditcards.com/credit-card-news/ownership-statistics-charts-1276.php (http://www.creditcards.com/credit-card-news/ownership-statistics-charts-1276.php)
1. 71% of american (adults) have credit cards
The percentage of Americans who have no credit cards rose to 29 percent in 2014, up from 22 percent in 2008.
2. in 2012 self-reporting for USA survey indicated a lot more people pay the balance in full. 58 percent pay in full, according to this survey, instead of the 35 percent in Bloomberg article..
Cardholders 18 and older surveyed in February 2012 who said they paid the full balance on their credit cards each month: 58 percent.
Read more: http://www.creditcards.com/credit-card-news/credit-card-industry-facts-personal-debt-statistics-1276.php#ixzz40GrIgPUP
3. The average american household that carries cc debt has just over $15k in debt.
Nerd Wallet has a great article, with 2015 study data...
http://www.nerdwallet.com/blog/credit-card-data/average-credit-card-debt-household/ (http://www.nerdwallet.com/blog/credit-card-data/average-credit-card-debt-household/)
For example, it states: "Ask yourself: Do I really still need my cable subscription now that I’m on Netflix? Do I still need to have a landline phone? Do I still need that car I hardly drive? There are basic things consumers at any income level can do to increase their wealth — even if that just means being able to pay off their credit card balances faster.”
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Studies show that people spend more with credit than cash, and I assume that means even responsible people.
That always has struck me as odd. I rarely whip out the CC or debit card for anything except stuff I need (groceries, gas, home improvement project stuff), but once cash hits my wallet it flows out like water, usually on stupid incidental purchases.
+1 for me. If they took a closer look at this behavior between generations, I wonder if they would see a discrepancy. I became an adult in the age of CCs being common, things like Mint, YNAB being popular etc... and I find that cash is easier to 'lose.'
Me too. If I have $100 in cash, it disappears so fast and I have no idea where it went.
But a CC it comes back in a giant list of shame.
I'm 34...
Two very different behaviours are being compared here.
I think the statement that people spend less when they use cash means:
When you are going grocery shopping, if you use cash you spend less than Credit Card. Why? Because the cash on hand is generally close to the value of goods you intend to buy...
e.g., that it is easy to throw in a few more expensive items into the cart when you have a Credit Card without a limit worry... if your grocery bill is going to be close to the amount of cash on hand, you will limit yourself, even if you see something else you want.
That is a different behaviour than comparing "walking around money" used to by gum, drinks and convenience items to the use of a credit card. For those transactions, you have already decided to buy, and $5 covers it easily. Using a CC over cash would not influence you... The only difference then, is if the cash in your wallet is earmarked in your mind as "fee spending allowance for any little thing I want". And of course, it liquefies and disappears quickly.
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Studies show that people spend more with credit than cash, and I assume that means even responsible people.
That always has struck me as odd. I rarely whip out the CC or debit card for anything except stuff I need (groceries, gas, home improvement project stuff), but once cash hits my wallet it flows out like water, usually on stupid incidental purchases. In general, I grab myself a $20 when grocery shopping on the weekend and that's my "allowance" for the week for grabbing a drink out of the vending machine, lunch out 1x a week, etc. To my mind, cash is already out of the bank balance, whereas anything else comes out of that money. Silly, maybe, but just how I've always been.
Same here. I find those studies suspicious. I don't believe it. I also don't see how it would work, logistically. When I'm in a store I pick out what I'm buying, then go to the checkout and pay. That's when I decide how to pay. How would the payment method affect what I pick up, when that happens before? Would I see the wad of cash and go put the chocolate back, but not if it was a card? Or would I have to be thinking that I was paying with cash before I walked in, and that would make me pick up less stuff?
Yes, that is absolutely how it works.... when the bill rings up as $220 and you have $200 in your wallet, you reach over and pull out the chocolate bar, the barbeque sauce, and the fancy cheese, because you only want them, don't need them this week.
Next time, you take a more accurate run through in your head as you are putting items in your cart, actively grabbing the no name laundry soap instead of Tide to save $5 so you can buy a chocolate bar with your grocery allowance....
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Cash doesn't come with rewards. I don't understand why anyone who is responsible with money would use it.
Simplicity
Control
Another big one: privacy. Those credit card rewards aren't free; they come at the cost of letting marketers, the government, etc. pry into your spending habits.
"Hey Bob, look at this guy: grocery, home depot, Shell. Grocery, home depot, Shell. Oh, a restaurant. Then...Grocery, home depot, Shell. What a loser!"
LOL
Better yet, do you know what they do with that information? they say to themselves... HMM a lot of Home Depot customers buy fuel at Shell. and PRESTO -- Home Depot pays Shell to start handing out Home Depot coupons at the pump.
Yep, it is a tragedy.
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Studies show that people spend more with credit than cash, and I assume that means even responsible people.
That always has struck me as odd. I rarely whip out the CC or debit card for anything except stuff I need (groceries, gas, home improvement project stuff), but once cash hits my wallet it flows out like water, usually on stupid incidental purchases. In general, I grab myself a $20 when grocery shopping on the weekend and that's my "allowance" for the week for grabbing a drink out of the vending machine, lunch out 1x a week, etc. To my mind, cash is already out of the bank balance, whereas anything else comes out of that money. Silly, maybe, but just how I've always been.
Same here. I find those studies suspicious. I don't believe it. I also don't see how it would work, logistically. When I'm in a store I pick out what I'm buying, then go to the checkout and pay. That's when I decide how to pay. How would the payment method affect what I pick up, when that happens before? Would I see the wad of cash and go put the chocolate back, but not if it was a card? Or would I have to be thinking that I was paying with cash before I walked in, and that would make me pick up less stuff?
Yes, that is absolutely how it works.... when the bill rings up as $220 and you have $200 in your wallet, you reach over and pull out the chocolate bar, the barbeque sauce, and the fancy cheese, because you only want them, don't need them this week.
Next time, you take a more accurate run through in your head as you are putting items in your cart, actively grabbing the no name laundry soap instead of Tide to save $5 so you can buy a chocolate bar with your grocery allowance....
But then you're limited by not physically having the money, not that one payment method is more "painful" then another. The studies claimed that with "infinite" cash you'd still spend less than with a CC.
And in practice having to put things back seems like a huge PIA. I always study cost/oz of items, no matter how I pay.
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Studies show that people spend more with credit than cash, and I assume that means even responsible people.
That always has struck me as odd. I rarely whip out the CC or debit card for anything except stuff I need (groceries, gas, home improvement project stuff), but once cash hits my wallet it flows out like water, usually on stupid incidental purchases. In general, I grab myself a $20 when grocery shopping on the weekend and that's my "allowance" for the week for grabbing a drink out of the vending machine, lunch out 1x a week, etc. To my mind, cash is already out of the bank balance, whereas anything else comes out of that money. Silly, maybe, but just how I've always been.
Same here. I find those studies suspicious. I don't believe it. I also don't see how it would work, logistically. When I'm in a store I pick out what I'm buying, then go to the checkout and pay. That's when I decide how to pay. How would the payment method affect what I pick up, when that happens before? Would I see the wad of cash and go put the chocolate back, but not if it was a card? Or would I have to be thinking that I was paying with cash before I walked in, and that would make me pick up less stuff?
Yes, that is absolutely how it works.... when the bill rings up as $220 and you have $200 in your wallet, you reach over and pull out the chocolate bar, the barbeque sauce, and the fancy cheese, because you only want them, don't need them this week.
Next time, you take a more accurate run through in your head as you are putting items in your cart, actively grabbing the no name laundry soap instead of Tide to save $5 so you can buy a chocolate bar with your grocery allowance....
But then you're limited by not physically having the money, not that one payment method is more "painful" then another. The studies claimed that with "infinite" cash you'd still spend less than with a CC.
And in practice having to put things back seems like a huge PIA. I always study cost/oz of items, no matter how I pay.
Okay, under the concept of infinite cash, I would agree that there is an impact, but it is minor. Cash is very nice for counting, physically, each month as you save a stash. Charts and spreadsheets are nice, but something about counting $20's....
Putting things back IS a huge PIA. Which is why this works for getting used to a new lower budget, which is hard enough to do, but CC's make it too easy to tell yourself "next time" and not put anything back or work harder to mentally track while in store -- I have to write it down as I place items in the cart, if I am buying more than $200...and want to be within $5.
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The studies claimed that with "infinite" cash you'd still spend less than with a CC.
But with infinite cash I could buy whatever I want whenever I want and still have more cash!
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I've been consistently in credit card debt for about the last 5 years. Never paid a cent of interest in my life. Does this study take 0% credit card offers into account (which can go on for up to 2 years?). Every card I've opened (except for my oldest card which I got in college and never used until I had a job post-graduation) I signed with a 6-18 month 0% promotional offer. I have 2 credit cards that when you spend a certain amount within 48 hours, it automatically re-triggers the 0% offer, so I don't even need to open a new card to get it. I pay the minimum and use the cash for other money-making endeavors, or keep it in high-yield savings.
It's the fashion now for cc's to come with these offers so I think it would definitely make a difference in the study to differentiate between those who carry a balance at no cost, and those who pay interest to carry a balance.
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Okay, under the concept of infinite cash, I would agree that there is an impact, but it is minor. Cash is very nice for counting, physically, each month as you save a stash. Charts and spreadsheets are nice, but something about counting $20's....
I'm sorry, but that sounds like the personal finance strategy of an 8 year old. I don't value being able to physically count my money. Having it in my house means that it isn't earning even the paltry interest of a savings account, much less working harder in other investments. I see almost zero value to having actual cash.
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Okay, under the concept of infinite cash, I would agree that there is an impact, but it is minor. Cash is very nice for counting, physically, each month as you save a stash. Charts and spreadsheets are nice, but something about counting $20's....
I'm sorry, but that sounds like the personal finance strategy of an 8 year old. I don't value being able to physically count my money. Having it in my house means that it isn't earning even the paltry interest of a savings account, much less working harder in other investments. I see almost zero value to having actual cash.
If you position it carefully under that old, worn-out mattress, it could help flatten out the ruts and extend the usable life by a few years. There might be a tangible ROI associated with that.... ;)
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Okay, under the concept of infinite cash, I would agree that there is an impact, but it is minor. Cash is very nice for counting, physically, each month as you save a stash. Charts and spreadsheets are nice, but something about counting $20's....
I'm sorry, but that sounds like the personal finance strategy of an 8 year old. I don't value being able to physically count my money. Having it in my house means that it isn't earning even the paltry interest of a savings account, much less working harder in other investments. I see almost zero value to having actual cash.
ha ha
I didn't think counting was anything special either, until I did it.
At first, whatever $sum I saved from groceries, household, etc., went into my personal allowance, and it was the first time in over 20 years of marriage that I had a personal allowance, that was all mine to spend without nagging or guilt, so that may have been related to it, but I don't know. There was a magical moment there...
Really, for those that have not tried a cash based system, it is a superior method for changing spending habits, and something about the tactile / physical nature is unexpected.
If you don't need to change spending habits, then there is no point.
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I spend cash like it's nobody's business. I also get extremely altruistic when I have cash. Homeless? Here, go forth and prosper for another day. Selling candy bars? Sure, I'll take 10! You need gas money and you'll pay me back (even though we both know you won't)...a tank on me! Need sponsors to send your kid to dance camp? Hmm, all I have left is a $20; oh, no change? Well that's ok, I'm a patron of the fine arts!
I'm sorry I don't have a quarter to help out with your bus ticket :( but if I did, I'd give it to you and only you.
The way my mind works with cash is I think "Whelp, the cat's already out of the bank so let the wind (or wherever fate takes it) have it". It's not logical but since we are only mindful a relatively small proportion of time, I don't catch myself often. Using a credit card gives me more of a sense of control because I can impact today, what that future bill is going to look like. I can only explain it as I feel more motivated by the goal to keep cash in the bank (by keeping my cc bill low), than to not spend cash that's out of the bank (like any form of an envelope system).
And running out of cash in my pocket doesn't stop me from buying what I want if I'm paying cash only. There are close to a half million ATMs in the U.S., and they're usually placed conveniently close to the thing I'm spending money on.
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In an odd way, I think the many hours of playing computer games growing up has helped prepare me for a life where I use the credit card as a spending tool. Seeing resources/money as mere numbers on a screen has become "real" enough for me.
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That article is pretty shocking. I've never had cc debt in my entire life and I use my amex for everything in order to get rack up points.
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Don't see that anyone's pointed out that once cash gets lost or stolen, it's gone for good, whereas a lost or stolen CC is a snap to replace.
No theft protection for anything purchased with cash.
No warranty extension " "
No detailed records " "
No points/miles/rebates " "
No ability to look back to see when/where an item was purchased...
And good luck renting a car or traveling without one.
For years, I maximized my savings and carried little cash. Now, if there's significant cash in the house, it makes me vaguely uneasy.
YMMV, but they'll pry my rewards CC's out of my cold, dead, long-FIRE'd hands. OTOH, for most of the same reasons, I rarely use a debit card. The only reason I carry one is for Winco and random odd cash needs.
Just as good dietary habits lead to a healthy weight, good spending habits equate to greater wealth. It's all about self-control.
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Another big one: privacy. Those credit card rewards aren't free; they come at the cost of letting marketers, the government, etc. pry into your spending habits.
I figure they are spying on me anyway. Might as well benefit from it.
Yup! Each time I look at an item on Amazon, it appears on my FB feed and elsewhere.
That's because, when you got to Amazon's site, it loads a Facebook Exchange (FBX) tracker. The Amazon homepage loads 16 trackers, including Amazon Associates, Google AdSense, FBX, DoubleClick, Twitter Advertising, plus lessor known ones.
You want to stop this? Get the Ghostery add-on for your browser AND the Ghostery browser for you Android smartphone. Worse than advertising is trackers who record your every click. In the name of "Analytics".
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"Hey Bob, look at this guy: grocery, home depot, Shell. Grocery, home depot, Shell. Oh, a restaurant. Then...Grocery, home depot, Shell. What a loser!"
HA! Writing the comment above and thinking about Chris22's "loser" comment reminded me of a credit story from the DC archives...
In early 2008, I decided to ratchet up my savings as high as possible. Started with a no-spend February and kept not spending for months afterward. I only bought the few groceries I needed at the 99 Only Store. Saved more that year than I ever imagined possible. I dumped it all in the stock market. Boy, was I amazed when the market recovered. My income stayed constant, my spending decreased, my savings soared and my net worth reached FI.
Then I noticed that my credit limit had been slashed on my primary affinity card. I called B of A to ask why and was told "Well, you're only shopping at places like the 99 Cent Only Store.". WTF??? If I'm a "loser", I guess I'm a lucky one. BTW they never raised the limit, so I switched to a better rewards card, which I use for everything, and RE'd. Loser indeed!
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Studies show that people spend more with credit than cash, and I assume that means even responsible people.
That always has struck me as odd. I rarely whip out the CC or debit card for anything except stuff I need (groceries, gas, home improvement project stuff), but once cash hits my wallet it flows out like water, usually on stupid incidental purchases. In general, I grab myself a $20 when grocery shopping on the weekend and that's my "allowance" for the week for grabbing a drink out of the vending machine, lunch out 1x a week, etc. To my mind, cash is already out of the bank balance, whereas anything else comes out of that money. Silly, maybe, but just how I've always been.
Same here. I find those studies suspicious. I don't believe it. I also don't see how it would work, logistically. When I'm in a store I pick out what I'm buying, then go to the checkout and pay. That's when I decide how to pay. How would the payment method affect what I pick up, when that happens before? Would I see the wad of cash and go put the chocolate back, but not if it was a card? Or would I have to be thinking that I was paying with cash before I walked in, and that would make me pick up less stuff?
Yes, that is absolutely how it works.... when the bill rings up as $220 and you have $200 in your wallet, you reach over and pull out the chocolate bar, the barbeque sauce, and the fancy cheese, because you only want them, don't need them this week.
Next time, you take a more accurate run through in your head as you are putting items in your cart, actively grabbing the no name laundry soap instead of Tide to save $5 so you can buy a chocolate bar with your grocery allowance....
Except, if you are over cautious, like me, you would keep a little more on hand than you strictly need (in case you find a good deal, or remember something you forgot you needed, or simply because you only stop by the ATM so often). So now that situation never happens.
And the result is the same as using a card. You go to the store and buy the things you need and a few things you want that you decide you can afford/are worth it. You buy the bbq sauce because it's on sale and the Tide because it gets bbq sauce out better. You skip the chocolate because you are trying to eat better and have fruit to snack on once you get home. You buy shampoo because you look at it and realize you barely eked out enough from the container that morning, but hadn't put it on your list.
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Cash doesn't come with rewards. I don't understand why anyone who is responsible with money would use it.
Simplicity
Control
Another big one: privacy. Those credit card rewards aren't free; they come at the cost of letting marketers, the government, etc. pry into your spending habits.
"Hey Bob, look at this guy: grocery, home depot, Shell. Grocery, home depot, Shell. Oh, a restaurant. Then...Grocery, home depot, Shell. What a loser!"
LOL
Better yet, do you know what they do with that information? they say to themselves... HMM a lot of Home Depot customers buy fuel at Shell. and PRESTO -- Home Depot pays Shell to start handing out Home Depot coupons at the pump.
Yep, it is a tragedy.
More like "hmm... in the last month this guy has bought [some politically controversial book] (https://en.wikipedia.org/wiki/It_Can't_Happen_Here) from Barnes and Noble, a pressure cooker from Bed Bath and Beyond, and fertilizer from Home Depot. He's obviously some kind of terrorist; let's no-knock warrant him and ship him off to Gitmo!"
(And if you think the US government would never do such a thing, click the link.)
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I have cash, and I keep it forever. I am slow to spend cash. If I go to the grocery store with $70, then I carefully spend less than $70.
If I use credit or debit, I'm more likely to spend more. (I get around this with a list, or just by not shopping.)
I suppose that's a natural limit on it, but also don't see the point. If I need milk, bananas and eggs for the week, but I don't have enough cash on me to buy it all then what have I gained? I go hungry because I didn't carry enough cash? Yes I guess I'd spend less, but I don't see much value in that, I'm not that poor. I buy what I need, how I pay for it doesn't much affect what I decide I need.
On the other hand I never get soda or vending machine snacks. And never feel much need to.
Personally, I did best on my grocery budget when I used a cash only system. I still do pretty well.
For example, it's not just "oh I need bananas, eggs, and milk". I have food in the pantry, fridge, and freezer.
So let's say that my budget is $70, and I need things that add up to $90.
I don't buy all the things. I leave some things behind.
Of those things, which do I need the least? Milk would be hard to go without with the kids. Coffee - well, I could survive with work coffee and tea at home if necessary.
Eggs? I like eggs, we eat eggs, but I could skip them for a week. I could make bread instead of muffins.
Setting a budget and taking cash means I'm choosing to purchase SOME things that I need, just not ALL things that we are out of. It also means I'd have to be more creative in the kitchen. With cash, too - that $2.50 bag of chips doesn't look so great when we are almost out of milk.
It's very much a personality thing though.
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Cash doesn't come with rewards. I don't understand why anyone who is responsible with money would use it.
Simplicity
Control
Another big one: privacy. Those credit card rewards aren't free; they come at the cost of letting marketers, the government, etc. pry into your spending habits.
"Hey Bob, look at this guy: grocery, home depot, Shell. Grocery, home depot, Shell. Oh, a restaurant. Then...Grocery, home depot, Shell. What a loser!"
LOL
Better yet, do you know what they do with that information? they say to themselves... HMM a lot of Home Depot customers buy fuel at Shell. and PRESTO -- Home Depot pays Shell to start handing out Home Depot coupons at the pump.
Yep, it is a tragedy.
More like "hmm... in the last month this guy has bought [some politically controversial book] (https://en.wikipedia.org/wiki/It_Can't_Happen_Here) from Barnes and Noble, a pressure cooker from Bed Bath and Beyond, and fertilizer from Home Depot. He's obviously some kind of terrorist; let's no-knock warrant him and ship him off to Gitmo!"
(And if you think the US government would never do such a thing, click the link.)
Aw, come on, there is more than enough data on the Government tracking your Google and other internet usage, that the credit card stuff is pitiful in comparison...
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I've been on both sides of this. I carried a balance on my credit card pretty much through my twenties and the first half of my thirties. I found it very easy to charge things I never would have had the cash to purchase. I knew about the finance charges I was paying - I was using Quicken most of this time and tracking it all. But I was in a mindset where that charge was just the fee I paid for the ability to buy these things earlier than I normally could. I'd have around $50 in interest to pay in a month and think, well - that's less than the cable bill. And that new computer sure is fast. Once I was in that mindset, any charge wasn't a particular problem - it was just a tiny addition to an already large pile.
But now that that I've got my head on straight and am focusing on reaching FIRE, I find I'm much less likely to spend on the card than I am with cash in my wallet. If I have a sudden desire to go to the local Mexican place for lunch and I have cash, I'm probably going. But if I would have to use the card, I think about whether I want to have an entry in my records saying I spent $8 on a burrito on Tuesday, March 23rd of 2015; and stare at that for the rest of my life. No, I really don't. So I'm not likely to go. As a result, I help myself stay on budget by having only a set amount of cash per week for nonsense spending.
But I totally get where people who have a revolving balance already would be prone to spend more with the card. Every purchase just seems so small. That's why people like Dave Ramsey and Suzie Orman - people who's audience are those who are deep in credit card debt - recommend going cold turkey.
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I love having that $8 burrito stare at me for all eternity. I use my debit card and there that purchase is on my banking software. Having it there slows my spending. I had to work past the effects of cash vs card b/c cash is where I need to be but I want that tracker for myself. Accountability to myself.
Yeah I ought to be using a cc for the reward points but once we paid that sucker off, I can't stand to use it and would cut it up but on out of town trips for work I use that vs the debit card for security.
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Before I had a credit card, I didn't understand that carrying a balance was even an option, I thought you were required to pay it off each month. Then I got my first student credit card, which had I think a $5k limit. I had heard of this concept of maxing out your credit card, and knowing that my limit was relatively low due to it being a student credit card, I was so confused how someone with a much higher limit than that could possibly max out their credit card. How could any normal person spend so much money in a single month?
I think I spent about 5 years in that state of confusion before I realized you were actually allowed to carry a balance to the next month.
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At 26 I moved out to Vancouver, frittered away meagre savings while looking for work and ended up flat (destitute) broke. Too proud to sign up at the welfare office, I began living off the cards and one time I actually paid one credit card bill with cash advance money from another one and vice-versa. Absolutely, fucking terrifying!! As soon as I landed employment I paid them both off as soon as possible and swore that would not only never do that again, but I'd ensure I was never again in a financial position to even have to consider it.
But lots of people out there now seem willing to do that and are fine with it--pay off one debt with another. "I'll do a balance transfer to a new one, I'll pay that with my LOC, consolidate, etc." I've met so many people who aren't handling credit card debt, just shifting it--like swirling their finger around in the water of a toilet bowl.
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I think I spent about 5 years in that state of confusion before I realized you were actually allowed to carry a balance to the next month.
I don't know if that was pure confusion. From what I understand, with American Express people used to have to pay their card off in full each month. (If they didn't have some sort of platinum one.) Maybe AMex still works that way? I don't know. You might have heard about that at some point so thought that's the way it all worked.
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AmEx cards did start as charge cards that had to be paid in full each month. Then AmEx joined the credit card market in the 80s with accounts that could carry forward a balance. I used to have an American Express Optima card. It felt like a novelty back in the day.
If memory serves correctly, Discover began in the 80s also -- what a great time for American personal finance!
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I still run into people who insist they're supposed to carry a balance in order to have a good credit score. One of them recently was one of my employees who is looking to close on a house soon.
Using your credit cards does improve your score. It doesn't require not paying them off month-to-month, only that there is activity and an "average" balance that's a couple % of your max at least. The thing is the reporting agencies only query your balance occasionally, so as long as the balance shows up at the time they query it, you get "credit" for that balance regardless of whether or not you pay it off at the end of the month.
Creditors like it because it shows you can responsibly use credit (which is what using your card but keeping a low utilization % typically indicates). And, unless it's your ONLY credit usage, it's only a small effect (I typically see 3-8 FICO points in swing as my reporting balance changes).
AlsoMost credit card companies have a 30-90 "grace period" so you can "carry a balance" without actually getting interest charges. My "convenience" card has a 60 day grace period, and I just pay off each month the amount that would fall out of the grace period. So my account rarely gets to "zero". Typically I screw it up a couple times a year and end up with a couple bucks in interest charges for the year, but that's only because I don't see an ROI in putting the time into the diligence necessary to prevent that couple bucks getting charged.