I’ve been thinking about how I spend and pay for my purchases recently. Ignoring out past financial history, today, I don’t have a problem with credit cards. We pay ours off monthly and can always be sure this will happen because:
- We budget and track our spending
- We set up the payment for the due date as soon as the bill is sent electronically
- We monitor our cash flow, so I ensure I will have the funds in our account when the payment is made. I will not go into overdraft, nor will I go below my $2K threshold I must maintain to avoid $9.95 of bank fees.
- If, for some reason, our spending is more than usual due to an unplanned emergency spend (examples: broken appliance (we always fix first if possible), car repair), I will transfer money from our Emergency fund/Property Tax account which is sitting at $9K currently with plans to grow to $15K.
I like to use our credit cards due to the cash back we carry on both cards. One is Visa and one is AMEX (for Costco, though this is now changing and we will have to pick a new Costco card by the end of the year – either Mastercard or Personal Capital). Currently I have cash rewards accrued on our Visa that will be paid in November as follows:
|4.00% cash back – gas & groceries||$170.26|
|2.00% cash back – recurring bills & pharmacy||$60.79|
|1.00% cash back – everything else||$161.34|
|Total cash back reward earned to date||$392.39|
This is based on stuff I need! I’m getting more than $400 because I lived my life! Granted, the card carries an annual fee of $99 + $30 for a second card, but we are still ahead more than $265 right now and probably $300 by November.
Some PF reads lately have acknowledged that credit cards have been a problem for them in the past, they’ve tried them again, and still they remain a problem so they have sworn off them. Travis @ Enemy of Debt says Credit Cards Are Officially NOT For Me and I totally respect that. If you’re struggling with what to do in this regard, I really recommend you read his views. There’s no right or wrong answer, but there’s a right or wrong answer for you.
Brian @ Debt Discipline has just paid off his 109K of debt and blames their families credit card usage for putting them in that position. Well it actually is due to overspending, but in truth, I agree with Brian. If credit was not so easy to obtain, families wouldn’t find themselves leveraging the convenience for ‘stuff’ they deem as important or necessary. They want to get some savings behind them for a few months before they decide if they will try to use credit cards again. In his words “A credit card is a tool for a consumer, just like a hammer is for a carpenter, when used wisely can be very effective, when used unwisely can cause major damage.”
I was reading on Myles Money the warnings about credit cards to teenagers and students in his post Credit Virgins. It’s definitely a slippery slope and fair warning needs to be given to those that haven’t been taught to pay them off monthly. This is something I learned from my parents, never to carry a balance. I was actually surprised to learn that some people thought it was the only way to build up a credit rating, to keep a balance on your credit card. There’s a lot of misinformation out there.
So while I know the dos and don’ts of responsible credit use, it’s really spending that I have always had the problem with. So I’ve been thinking about if using cash would help me to spend less rather than using credit? For me, I don’t think it makes any difference.
I realize that credit or cash (or debit) has no bearing on how much I spend. Having cash in my hand or wallet and handing it over, does not make me think twice about buying something anymore than handing my credit card over. It’s like cash is just paper and it has no more relevance to me than that piece of plastic. They are both important, but one is not more important than the other. I would reluctantly hand either over if I didn’t think what I was buying was (a) necessary (b) reasonably priced (c) in line with our spending goals. So this reinforces my strategy to use credit wisely. Then, I can use the once a year* cash back to pay for more of what is necessary, reasonably priced and in line with our spending goals.
What side of the coin are you on – credit or cash/debit? If you use credit card rewards, what is your preference for type or rewards? Does paying with cash or debit help you to spend less than with credit?
*Note: Some cash back cards pay out more frequently.