Considering a Cash-Only Lifestyle?
In an effort to get off the debt cycle for good, increasing numbers of consumers are saying goodbye to credit cards. Some 29% of respondents in a 2010 poll by CreditCards.com said they did not own a credit card—about a 10% jump from the previous year.1 For many people, letting go of credit is the best way to stay out of debt. Are you considering a credit card-free lifestyle? Following is a roundup of the pros and cons of the three most popular payment methods.
Credit Cards:
Pros: Highest level of fraud protection. Legally, credit card holders are responsible for no more than $50 in unauthorized purchases,2 and many card issuers take full responsibility for unauthorized purchases. Helpful for building good credit. Many have rewards programs.
Cons: Unless you very financially disciplined, it can be tough to control and track your spending—especially if you are prone to impulse purchases.
Debit cards:
Pros: Since they are tied directly to your checking account, debit cards can make it easier to track and control spending (you are limited to your account balance).
Cons: If you report loss or theft of a debit card within two business days, you are liable for up to $50; wait two days to report it, and you could lose up to $500. After 60 days, you may be liable for the full amount.3
Cash:
Pros: It’s simple and easy to pay attention to where your money goes. Studies show that consumers spend 20% less when spending with cash vs. credit because they focus more on the cost of the item than the benefit.4
Cons: May have trouble building a credit history if you go completely credit-free. Booking hotels and rental cars can be tricky, as many of these vendors prefer that you make reservations with a credit card. Note: Even paying for hotels with debit can be problematic, as vendors may put a “hold” on cash in your account (possibly a few hundred dollars) until the hold is lifted.
When considering a cash-only lifestyle, carefully weigh the pros and cons before taking the plunge.
1. “Could You Live Without a Credit Card?” US News and World Report, June 2, 2013
2. Kiplinger’s, August 2013
3. Ibid
4. “Could You Live Without a Credit Card?” US News and World Report, June 2, 2013
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When you are on the right track with budgeting and savings, the few hundred dollars held by the merchant is no big deal.
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