I did not announce it on this blog, but the week of November 6th, my wife and I stopped using our 2 credit cards, AMEX Gold and BMO Mosaik Mastercard, altogether. We basically told ourselves to stop using them, and to start using cash or debit for everything. I had thought for a long time that we were overspending because we were buying on credit, much like a university student will spend more money if they have a student loan then if they didn’t. As long as we paid of our cards promptly, I thought, they were a pretty good deal. One month interest-free plus the convenience. Wrong, according to The Wealthy Barber:
For most people, they’re not a good deal. The convenience that you view as positive can combine with human nature to form a destructive force, especially in the hands of someone who loves to shop. How many times have you bought something with your credit card that you wouldn’t have bought if you’d had to pay cash? And isn’t it usually something that you know you could live without? Then how many times have you opened your credit-card bill, clutched your throat, and shrieked, ‘Five hundred dollars! What the heck did I spend it on?’ So the fact is that many people who pay off their balance each month are still hurt by their use of credit cards.”
This described us pretty much exactly, so it was after reading this that I decided to work towards not using credit cards EVER. I realize that I will have to use them for many online purchases. However, those will be few, and it will be easy to transfer some money from chequing to the credit card immediately after making the online purchase.
We have made good progress so far. The last charge on our AMEX was on November 6th. The last charge on our BMO Mastercard was on November 11th. There was one other $4.25 parking fee charged to our BMO which was then paid down immediately that day and I also charged almost $200 to our Mastercard for dental work but I expect to get reimbursed for that from my employer well before it comes due (unfortunately we have to pay our dental claims up front before getting reimbursed from my company). I find that I have spent far less in the past few weeks than I have in a long time. I almost made a $300 purchase on a new computer case and hard drive two weeks ago, but after looking at the balance in our chequing account, I hesitated. That is a typical expenditure that I would have treated as a need before, charging it to my credit card without thinking. Now I realize that it is a want, and that I can live without it. We have a savings account for these wants and I will reconsider that purchase once there is more saved up. I was also wooed in the past by the Air Miles scam (both our credit cards are Air Miles credit cards). After 8 years of collecting, and enough points for just one flight, I am completely turned off by them. Nothing more than a scam intended to get me to spend more on my credit cards.
Here’s more thoughts on cash vs. credit cards from “Free Money Finance: Eight Unusual Ways to Create Cash“:
It seems impossible to exclusively use cash in today’s credit-oriented world, but those who do “create” significant cash. How? By spending dramatically less. Ron Blue, author of Master Your Money, notes that the mere use of credit cards causes a family to spend 34 percent more even if the statement is paid off monthly. Author Nancy Dunnan agrees in Never Call Your Broker on Monday by noting, “People like your parents or grandparents actually went through life using checks or cash. It worked then and it works now. Do the same and you’ll wind up spending 20% to 45% less.”
Check out the first comment on that post, and also the comments on this post. Unbelivable how attached people can be to their credit cards and those “cash-back rewards.” I am still firmly of the opinion that the best credit card out there is no credit card.
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