I’ve been thinking a lot about credit cards lately, and this post will probably only skim the surface of everything rolling around in my head. I’m taking a hard stance on this issue, but that doesn’t mean I have any contempt for those who choose to live their lives differently. This is simply my two cents (money pun somewhat intended).
I recently read Jon Acuff’s book Gazelles, Baby Steps, and 37 Other Things Dave Ramsey Taught Me About Debt. It was moderately amusing; I think it would have been funnier had I read any Dave Ramsey books or followed Financial Peace University. So that is my big disclaimer about this post. I’m not claiming to know everything he says about credit cards and money management in general, nor am I claiming to know everything about those topics myself. But it seems like in the frugal living-Mommy Blogger world, Dave Ramsey is king, so I’ve read a lot about what he teaches (and ultimately have a lot of respect for his intentions). But I’ve also read a lot of posts about subscribing to tactics he suggests…and to be honest, some of them make me really nervous. Namely: cutting up all your credit cards and spending only cash.
First of all, the idea of spending only cash makes me nervous because if you’re spending only cash, that means you have a lot of cash lying around. If A. and I were to deposit our paychecks and then withdraw cash to cover every penny we planned to spend that month, I would feel like I needed an armored car to get around and a padlock on my purse. There’s no protection for cash. Even our renter’s insurance only covers cash up to about $200 in the event of a break-in, fire, etc. With credit cards, you have lots of protections, including retail dispute assistance and protection from identity theft and fraud. (Read more about that here.)
The Dave Ramsey philosophy offers debit cards as the solution to some of these situations. The money is coming immediately out of your account, so it feels like cash, but you have minimally more protection than with cash. But it’s not quite enough to me. If your wallet is stolen and someone spends a large amount of money on your debit card, you could overdraft and incur a fee. That fee and the money lost might not be refunded for quite some time. Plus, you have to type in your PIN everywhere with debit cards, and there are creepy software programs out there that can filch PINs from public keypads, not to mention people who might be watching carefully over your shoulder and following your fingers on the numbers. Also, if you are using your debit card at a hotel, they can take hundreds of dollars out of your account upfront to cover any incidentals you might incur during your stay. You’ll get it back at the end of your visit if you don’t spend it, but that means you need to keep extra money in your account to make sure you can fund the rest of your vacation. Finally, I read somewhere that using a debit card to rent a car can provoke a hard inquiry on your credit report. I haven’t corroborated that, but if it’s even a possibility, I’ll pass. Hard inquiries are bad news, as far as I know.
If you use a credit card well, it can provide a lot of perks, not the least of which is peace of mind. MSN Money published an interesting article recently about credit cards as travel protection. All of the aforementioned protections apply here, along with a few others: if you become ill, a credit card can speed up your treatment. And apparently credit card exchange rates won’t hit your wallet as hard as if you change all of your money for foreign cash. You can read the full article here. Another perk, obviously, is cashback and other types of rewards. The best way to use these is to pay off your card in full every month, because then the perks really are a bonus and don’t just mitigate the debt you owe.
A. and I have several cards that we use regularly, each of which earns a good percentage on different types of purchases. We use one card for gas, one for restaurants and some online retailers, and another for general purchases. If one of the cards is doing a promotion with extra cashback, we use it for that. I will admit that I am the absolute worst at remembering to switch it up. When we first got married, I practically had to carry around a sticky note reminding me when to use what card. But when we get bonuses at the end of the year to the tune of hundreds of dollars, it’s well worth it.
And we pay each of them off every month. A post on a blog I love got me all riled up recently, and it was because commenters seemed so indoctrinated into the cash envelope system that all they could do was bash credit cards. Someone said it was great to go on a vacation with just cash because you didn’t have to spend the trip worrying about the bills that would be waiting when you got home. But as far as I see it, you can do that anyway, if you’ve saved for a trip and have the money waiting in an account for when the credit card payment comes due! One commenter stated my thoughts better even than I could (I wish she had a blog so I could link to her!). Krysten wrote, “My husband and I use credit cards (we like the rewards!), but treat them like debit cards. We only spend money that we have in our account, and as we keep track of our finances, we subtract our credit card payments from our checking account in our books, because in our minds, the money is already spent and gone. Of course we pay it off every month too. It’s all in your view of the card. If you spend money now that you hope you’ll make next month to cover your spending, it’s going to be stressful. But if you spend money that you already have in your account, as long as you keep track of your spending and stay within your budget, it doesn’t matter what form of payment you use.”
Everyone else’s point seemed to be that if you had credit cards, it automatically meant you were spending crazy amounts of money, and I don’t think that’s a fair assessment or accusation. A. and I have a budget that we stick to. We re-evaluate it at the end of every month, measuring how we did versus how we’d like to do, and we re-allocate our dollars for the next month, tweaking different categories up or down as needed. I can understand that some people struggle with self-control. I’m not always great at getting myself out of bed to go to the gym in the mornings, and sometimes I eat things that I know aren’t good for me just because I can’t convince myself not to. But Dave Ramsey’s whole theory seems to be about learning to control your money, and I think saying you can only do that by using cash is a cop-out.
The last thing in the world I want to do is come across as holier-than-thou about this. I’ve learned most of what I know about finances in the past year and a half of being married, because I was fortunate to marry a man who has a great head on his shoulders for this type of thing. I’m still learning every day. But I’ve become passionate about saving money, and spending wisely when I need to spend. I respect that Dave Ramsey has changed the lives of TONS of people. There is nothing bad about his teaching AT ALL. And if it works for you, that’s great. I just can’t quite get behind the idea of cutting up all my credit cards. My overall point is that working to get a handle on your finances is admirable and necessary, and if you need to leave credit cards out of the mix, by all means, DO IT…but I don’t think they are inherently evil.
What are your thoughts on living life without credit cards? I would really love to open a dialogue about this…send me some comments!
