Cutting Out the Credit Cards

Could you quit using your credit cards?

Get rid of our credit cards? You’ve got to be kidding me! When we first heard Dave Ramsey’s idea to cut up your credit cards, we laughed. We were “responsible” credit card users and didn’t think that we needed to make any changes to our credit card use. We paid off our credit cards each month, and never paid late fees or interest. Besides, we got cash back on the card we used. Why would we want to give that up?

We listened to the arguments:  When you pay with cash, it hurts. You can “feel” the money leaving you. Sliding a credit card registers nothing emotionally. Because of this, people spend more when they use credit. Some experts say 18% more. A recent study by McDonalds found that people spent 47% more at McDonalds when they used credit. Did we really fit into this category?

And what about our “cash back”… it’s like free money, we thought! The reason that credit cards can afford to offer cash back and other “rewards” is shown in a study by the Federal Reserve Bank of Chicago. In their study, over a nine month period of time, the consumer with a “cash-back” reward card spent $76 more per month. And surprisingly, they also paid less on their outstanding debt—an average reduction of debt payment of $83. That’s a combined total of $159 for a $25 cash back reward!

We still fought the studies and the statistics. We didn’t want to give up our credit cards. We wanted the freedom to not have to consciously think about our every purchase. We wanted the convenience that credit cards offer. However, at the end of last summer, we decided to give it a try … although we weren’t ready to actually cut up our cards. We simply removed them from our wallets and watched to see what would happen. We weren’t optimistic.

But the results surprised us. Right away we noticed that our spending reduced drastically. As we forced ourselves to use only budgeted cash, we had to think about each purchase. It was painful. It was inconvenient. But it was powerful. We were spending considerably less and we were in control. We always knew where we were at instead of waiting for the credit card bill to come at the end of the month, hoping that we had the money to cover it without dipping into savings.

The second benefit we noticed surprised us. We were current instead of one month behind. When our paycheck came, the money wasn’t already spent on the credit card. We had never thought of it as being “behind” before because we paid off our credit card bill each month, but the money had already been spent. If the worst happened and we lost our jobs, we would have already been behind a month because of the purchases we had made that month on the credit card.

There are still times we want to go back to the credit cards …. when we are feeling lazy and don’t want to take the time and effort to think ahead and say no to ourselves.  But the joy of living a life of purpose – knowing what our financial goals are and working towards them – outweighs the inconvenience of living a disciplined financial life. Having a spending plan (aka budget) and telling our money where to go instead of wondering where it went reduces our stress and leads to peace.  As we gained a sense of spending control we also gained confidence in our financial plan and the goals that we have set.

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