It’s no secret that one of the worst types of consumer debt to hold is in the form of credit cards. Despite the increasing savings trend since the economic fallout, the average household still carries an average of $14,743 of credit card debt. What’s even worse is that those credit cards carry an average interest rate of 14.83%. I’m not saying that credit cards don’t carry their fair share of benefits like fraud protection, travel insurance, and in some cases generous rewards programs, but they carry a great deal of risk for those who can’t use them properly. For some people, the cash only life is the way to go.
“Personal finance is 50% psychological”, I’ve heard and agreed with this phrase on more than one occasion. You know the rules, don’t spend more than you earn, don’t pay interest, buy a used car, keep a six month emergency fund, etc. However, I’m willing to admit that many of us don’t hear adhere to all of this advice. Sometimes you have to simply take one step at a time, and that first step should be switching to a cash only lifestyle. Using cash for all of your purchases creates an attachment to your money that you won’t experience using plastic. For some reason, people don’t often correlate a credit card purchase with an actual outflow of cash, as if they were using monopoly money to buy that item.
Consider the “think before you spend” motto that many of us bloggers tout. You go to your local Best Buy, or Google shopping as I often recommend, and you find that $2,000 LED 3D television that you just have to buy, but you dont’ have the available cash to purchase it. By simply not using a credit card to buy that television you are forcing yourself to think twice before that big purchase, and the possible interest that could come along with it. Impulse shopping is a serious no-no in properly managing your finances.
We all know that a budget is a necessary tool for saving money and avoiding debt. The beauty of paying with cash is that you can never spend more money than you earn. This is one of the best tools in keeping with a budget. Though you may save less than you desired, or spend more on entertainment or food than you allocated, you will never spend more money than you have. Despite what many think, having a zero net worth is much better than a negative one.
I once had issues with overspending on my credit card, and though I haven’t paid credit card interest in quite some time that doesn’t mean I haven’t utilized my card on several occasions. Even paying off your credit card on time doesn’t always mean you are being financially responsible. As I said before, people detach the bond they have between cash and purchasing when they use their credit cards. I have slowly weened myself off of using credit cards, but those air miles, and 5% cash back promotions keep luring me back in! The cash only lifestyle isn’t a necessity for everyone. Though if you have a credit card balance, or a history of paying finance charges, it may be time to reconsider your spending habits.