/ / Using Cash Alone Won’t Magically Prevent Overspending Or Debt (And Other Thoughts On Cash/Credit Cards)

Using Cash Alone Won’t Magically Prevent Overspending Or Debt (And Other Thoughts On Cash/Credit Cards)

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Man and woman sitting on couch holding an open empty wallet with bills and a calculator on coffee table talking about having no money

Do you hate credit cards?

Do you live a cash-only lifestyle?

Many people think only using cash keeps them in control.

They think that even with a budgeting app they’re in full control.

They think that it prevents them from overspending.

They think that because cash is a finite resource, only what is on hand can be spent.

They also believe that only credit and credit cards lead to debt.

Unfortunately for you and all of these people, that line of reasoning is wrong.

There are a couple of misconceptions when it comes to cash and debt.

Both, if taken too lightly or ignored, can be just as dangerous to a person’s financial state as mishandling credit cards can be.

Cash Isn’t Foolproof

The first wrong assumption here, and the most dangerous is that you cannot get into financial trouble by adopting a cash-only lifestyle.

In fact, this is further from the truth.

Just because you shouldn’t be able to spend more money once your balance reaches zero doesn’t mean that it is always true.

There is a little thing called overdrafting, which is a common problem among people who have poor money management skills.

For the uninitiated, an overdraft is what ends up happening when you make a purchase via check or electronic debit and there is not enough money in your bank account.

In some instances, the bank will process the payment and allow the account to remain overdrawn, or negative.

During that time, the bank will also charge an overdraft fee while charging interest until the balance is brought back to a positive value.

In other cases, the payment is rejected outright.

The company you paid will also charge you a fee to cover their own returned deposit charge.

But if you’re already at zero, you won’t be able to pay that either.

Overdrafting is very easy to do if you do not have a handle on your account balances.

Or if you try to play games with floating funds–planning on a deposit coming in but hits the account after purchases have been made.

The best-case scenario is that only one payment bounces.

The other end of the spectrum occurs when that one creates a cascading effect on a series of payments.

The end result can be a significant negative balance in addition to a serious number of returned item fees and fees passed along to you from the companies you attempted to pay.

Debt Isn’t Exclusive To Credit Cards

The first thing people equate with consumer debt is credit card debt.

That is far from where the line is drawn.

The reality is that debt means owing anyone anything, monetary or otherwise.

You may be wondering if you only use cash then how can you end up in debt?

It’s really quite easy to do.

The answer lies in your spending habits.

You’re undoubtedly aware that putting more on credit cards than you can repay is a major cause of debt.

But what people tend to ignore is that even if you don’t use credit cards mishandling your money can also lead to debt.

You may go out on a shopping spree, using just your debit card, but wind up spending more than you originally planned.

When it comes time to send in your payments for things such as housing, auto, phone, power, or any other bill you may not have enough in the bank to pay one or more of them.

What happens next?

You become indebted to these companies.

You are now in debt.

The more out of control your spending is, the further behind you get on your bills.

Debt is not exclusive to credit card users, and as you can plainly see here, it is very possible, and not that difficult, to get into debt even with a cash-only lifestyle.

The information is all there for anyone to see: cash is not as safe as some of the pundits will have you believe.

No matter what the experts and studies say about the psychology of people’s spending habits, no matter how much people will argue that cash makes them spend less, it is possible to overextend yourself financially using cash.

A (Brief) Word Psychology Of Spending

Look, I get it, there is a mountain of anecdotal data and plenty of studies have been done.

They all say credit cards lead to spending more.

And they all say that people treat the process differently when paying with cash vs. credit cards.

I’m not debating that AT ALL.

What I AM debating is this theory that if you don’t use credit you can’t overspend or get into debt/financial trouble.

I find it to be a hilarious take and one that is very dangerous.

That’s really all I’m going to say on that.

Cash Sucks. ‘Nuff Said

Disclaimer: cash isn’t really always bad, I just like to play it up a bit. It is, however, super important when preparing for hurricane season or other disasters.

I used to like cash.

A lot.

Of course, it was back when I was younger and cared how others viewed me.

I would love to get paid.

Going to the ATM, pulling out some cash so anytime I’d go out I thought I was cool whipping out a wad of 20s and look like a big shot.

That all seems like a lifetime ago now.

These days, I don’t really carry cash.

Not even for emergencies since almost everyone takes credit cards.

I prefer to travel lightly, carrying as little on my person as possible.

It just makes sense not to load up my wallet (and pockets) with unnecessary stuff.

Now, I prefer to use credit cards for every purchase if I can.

Don’t take this as me telling you how to live your own life.

If you haven’t been able to figure it out by now, that’s not how I roll.

I don’t believe that what I do is something that should be followed by everyone.

I’m not one of those people.

Far from it.

I’m of the belief that everyone needs to find what works for them and that no financial advice applies to everyone’s situation.

So, why do I hate cash so much?

The reasons are many (and not very serious at times):

  1. You don’t get rewarded to use it
  2. There isn’t a special, exclusively colored version to show your true “status”
  3. It’s slow to count out when making a purchase
  4. And if you want to use exact change it really is a pain in the ass to find that last coin needed
  5. There are no security measures built-in in case of theft
  6. You can’t get help disputing a purchase
  7. It’s stinky
  8. It’s filthy
  9. It feels funny to the touch
  10. It’s bulky to carry around
  11. It can rip
  12. And if it rips, some places won’t accept it
  13. Vending machines definitely won’t take it ripped
  14. Coins are heavy
  15. They make a lot of noise in your pocket
  16. When you drop a coin it can roll under heavy objects
  17. When cash is lost it’s lost forever
  18. It’s difficult to keep track of if you aren’t meticulous
  19. If you don’t keep the receipt, you’ll never remember what It was spent on
  20. It’s racist: there are only dead white dudes’ images on money
  21. It doesn’t give you any kind of insurance
  22. You can’t customize it with a picture of your pet or kid
  23. Pennies. Need I say more?
  24. You have to go out of your way to get it from the ATM
  25. And in an emergency, it takes too long to transfer it between banks
  26. It isn’t an identity theft protection method like some people like to claim.

That’s pretty much it…for now.

I’m sure I will think of more ways in which cash sucks from time to time, but this should be enough to get me in a bit of trouble with some of the anti-credit or pro-cash people?

It’s cool though, I don’t mind people disagreeing with me as long as they can back it up with a little more than an “Uh, because…” response.

Besides, this was kind of fun!

5 Reasons I Love My Credit Cards

Before I get very far, let me say this:

I know I may be in the minority in the personal finance community.

Even with all of the credit card churners and travel hackers.

When it comes to the credit vs. cash debate, many still hate credit.

I’m perfectly ok with it.

I have no problem saying that I like my credit cards.

I like the benefits they bring me, many of which I have used.

Some I was thankful for access to after I needed them.

And, I figure if J. Money can say I’m a Bottled Water Drinker & I’m Not Afraid to Admit It, and not care about what the feedback will be, then I guess I can do the same about credit cards.

So without further delay, I’ll get to my points.

Why do I love my credit cards so friggin much?

1. Comfort

Which is easier to carry around: $10,000 in cash or a thin piece of plastic with a $10,000 credit limit?

The plastic weighs less, fits better in your wallet (fits better anywhere on you for that matter), and doesn’t require a second belt to hold your pants up.

And for the ladies, you can still carry around your little clutch (or whatever the new “in” thing is called these days) and not have to worry about having room for everything else you need to carry along with you.

Plus with all the coinage, who wants to be hearing it jingling in their pockets or even have to carry it in the first place?

2. Security and Insurances

Have you ever heard of your bank limiting your losses if you lose or have your wallet full of cash stolen?

I didn’t think so.

Have you ever heard of a thief getting caught when using the cash they stole from someone?

I didn’t think so.

And btw we’re not talking about bank robbers in this case!

Have you ever heard of anyone able to call the bank and cancel their cash when they realize it’s been lost or stolen?

I didn’t think so.

What happens if your cash goes in the washing machine and comes out as a ball of mess?

What happens if you have a dispute with a merchant and need someone to intervene on your behalf, do you call the cash patrol (don’t ask, it’s the first thing that popped into my head) like when you have a problem with a credit card purchase?

Jim Wang once referenced extended warranties provided by credit cards when discussing insurance policies to skip, saying:

They usually are not worth it because you are almost always protected by another means, especially if you pay with a credit card. Many credit cards double the manufacturer’s warranty for up to one year, it’s a feature you’re already paying for.

It doesn’t end there, no sir.

These days, credit cards also offer travel insurance and car rental insurance too.

The specifics differ depending on the bank and specific branding, but it is there just in case you need it, and keeping you from paying extra for the coverage from the airlines, car rental agencies, etc.

Does your cash provide that kind of service to you?

3. Budgeting and Recordkeeping

I’m sure everyone reading this uses some sort of personal financial software like Money, Quicken, QuickBooks Online, FreshBooks, etc.

How great is it to just press a button and have all of your transactions appear in the register, and coded to the proper expense category to boot!?

How easy is it to put all of your expenses (well, ones that you can charge at least) on one card and not have to worry about going to this site or that site to make a payment?

Yes, I know that you can use the bank’s bill pay but I like my payment to be made and recorded right then and there, and from my experience bill pay takes days before even initiating the transfer.

How many times have your cash transactions made it easy for you to track and categorize them?

What’s that you say?

Speak up.

None?

That’s what I thought.

4. Rewards

Probably not the best reason for many people, but it is still a very viable and beneficial reason why credit cards trump cash nonetheless.

Let’s put it this way: your bills and expenses have to be paid for one way or another, so you might as well use the plastic for it and get something in return.

Since most of the credit cards have online “malls”, you can even make your regular purchases for bonus points and accumulate the rewards even faster.

If you shop with Rakuten you can stack savings for even greater savings!

Now, you might not be rewarded right away, but I guarantee you that if you do it the right way and earn yourself enough points/miles for a family vacation then you certainly won’t be too unhappy, no?

In addition, depending on the brand of card, you get other benefits; access to airline clubs, special rates at hotels, free shipping deals, early notice of sales or promotions, etc.

5. Convenience

The credit card is always in your wallet, which is always with you–well, at least it should always be with you.

Unlike cash, which is oftentimes pulled out of a pocket and thrown onto a table someplace, where it can be easily forgotten.

Oh, wait, what about the times when you run out completely?

Time to drive over to the ATM.

But wait again, what happens if you have to drive across town because you use a bank or credit union that doesn’t have a branch near where you are???

Or if your branch is servicing the ATM when you get there?

Or even if–gasp!–it’s out of cash or even order?!

Then you have two options:

  1. Waste time, and gas (which is to say more money) in order to avoid the out-of-network ATM fee, which is a double-whammy if your bank charges its own fee too, or
  2. You can just suck it up and go to the nearest ATM and hope the fees aren’t crazy high!

I recognize the arguments against credit, and for the most part, I respect them.

Of course, you may need cash for certain things like paying the neighborhood kid to do things for you or to buy Girl Scout cookies or lemonade from the kids down the block.

However, I’d be willing to bet that most of them are so technological that you can send them a PayPal payment, Venmo, or bank transfer, or even use their own card swiper and not even need cash!

There are certain things I totally disagree with, though.

One, in particular, being that credit itself causes people to go into debt, but for more on that read Credit Is Not The Enemy, You Are!

Sure, there are going to be people who are going to want my head on a platter for this since it may go against their “no credit/debt” lifestyle, but I can live with that.

Sometimes you just have to do what works best for you and not worry what anyone else thinks or is going to say.

Your Turn

There you have it! Practically all of my thoughts on the subjects of cash & credit cards hahaha. What about you? Do you still think going cash-only will prevent people from going into debt or getting into financial trouble? You can also tell us all what your feelings on cash & credit cards are–just remember one thing: don’t knock something just because YOU happened to mess up, try to keep it unbiased.

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Nope
Nope
2 years ago

Cash I can see, “money” on my card I can’t. If I carry cash I become VERY picky about how and where I spend it. If I carry my card I seem to always lose track of what amount went where and I use it a lot more freely. It’s a mind game I play on myself, but it works. You do you….I am successful this way so I’ll keep right on truckin’.

Demetrios
Demetrios
1 year ago

Cash is good if you need to transfer money quickly from one bank account to another account at a different bank, assuming they are close by. Cash get instantly credited to your bank account.

Amy
Amy
1 year ago

How are millenials so woke except for the fact that their wages may be artificially low due to an entire system that exploits? Spending cash, alone, doesn’t increase wages. You be woke now.