Comments on: You Spend More Money When You Use A Credit Card

By: author

author — Thu, 19 Jun 2008 02:42:25 +0000

Ekrabs, it’s a good debate. I am not claiming that everyone who uses their credit card for everything is overspending. some people are great at having a number in their head and sticking to it no matter if they use cash or plastic. My wife is one of those people.

You said it well, they are a trap.

By: ekrabs

ekrabs — Mon, 16 Jun 2008 22:13:36 +0000

Well, let me qualify outright that I pay everything on my card.

That said, perhaps I am the one in the minority in that I don’t THINK I over-spend anyway.

The reason why is because I usually follow my budget strictly. In other words, by the time I get paid, all of my money is already budgeted away, and for example, I know how much money is set aside to buying groceries.

If the concept seems a bit fishy, it’s because I first started this system with envelopes and cash. So, you can imagine that when I got paid, I converted my paycheck to cash, then stuffed the allocated funds into each envelopes. As I go to the grocery store, I only take the grocery envelope with me.

Eventually, I moved on to the computer to track all of my expenses, but the system remained because I am so used to it. I also switched to a credit card rather than cash, well, mostly because I got a job that had direct deposit. However, because my budgeting system is still in place, I don’t overspend.

In a long about sort of way, I agree that credit card can be a trap. Even for those who pay off the balance very month. And the reason is because, unlike an enveloped filled with cash, it’s not as easy to keep track of your cash flow through credit cards.

So, to me, the question really comes down to your ability to track your cash flow and your budget discipline. If you have these two aspects in place and humming along nicely, you shouldn’t have much problem with credits cards, as they are merely a means of transaction. If not, well, you can easily over-spend.

By: Bob

Bob — Tue, 27 May 2008 02:27:49 +0000

Another thing that we over spend on is the tips we leave when using credit cards. When I review my tip reports for employees daily I find that credit tip are 25% or more.
Some may say this means my employees are giving great service but also how much is it people just rounding up to get a even dollar amount to make balancing their statement easier?

By: mbhunter

mbhunter — Mon, 26 May 2008 05:59:22 +0000

I’m one of those PF bloggers that puts everything on my card and I’m sure you have a point. I haven’t missed a payment but I agree that there is the tendency to spend more doing everything on credit.

I’m adding you to my blogroll. Glad I ran across your blog!

By: Chris

Chris — Sat, 24 May 2008 16:06:42 +0000

I used to consider myself an expert on credit card rewards. I got free flights and cash back all the time. I patted myself on the back because I thought I was beating the system by paying off my credit card balance each month. But one thing that I did not consider was the negotiating power of cash. At the mall last week, I saved 26% on a pair of sunglasses simply because I used cash and had the gumption to ask. You just can’t do that with a credit card. You won’t always get a good deal, but over time, you’ll save more money by negotiating with cash than you would with any credit card rewards. I shredded my last credit card over a year ago.

By: Bill

Bill — Thu, 22 May 2008 15:16:14 +0000

Erik,
I totally agree with you. Credit cards are a trap. And yes, you can get “cash back” and you can earn “miles”. And those seem like good incentives.

I know this first hand, because I’ve fallen into the trap of using my cards for everything so I could “earn” all of these goodies. Sure, over the past 10 years, I’ve earned over 193,000 miles on my Amex Membership Rewards, which means that I SPENT AT LEAST $193,000 on my Amex alone!

And guess what? Those 193,000 miles AREN’T EVEN ENOUGH to get 2 of the CHEAPEST REWARDS ROUNDTRIP TICKETS on Delta from New York City to Rome. Each ticket will cost me 100,000 miles! PLUS, $41.36 in Taxes/Fees for each ticket.

And the CHEAPTEST PAID ROUNDTRIP TICKET on Delta from New York City to Rome on that same exact flight is $1,107.

That means, that for the $100,000 it cost me to get the 100,000 miles I needed to get this Rewards Ticket, I only earned $1,107. That’s a Return on Investment of ONLY 1.107%!

Now, some people may look at it as if I SAVED $1,107 on this ticket.
But I see it as I MADE ONLY 1.107% on the money I spent/invested. Oh yeah, I bought stuff with that money. But this return on investment is terrible.

Great blog. Keep posting.
Bill

By: Jacquelyn Hart-McCoy

Jacquelyn Hart-McCoy — Wed, 21 May 2008 15:03:28 +0000

I do not think you are an idiot in any way, I don’t even think you are wrong, I think this is a very individualistic thing. For some the issues you have stated may be a big problem. For others it may not affect them at all. I do not think this is an all or nothing type of issue. I will never stop using credit cards. I pay all my bills on them and have for over 3 years. I have never paid late or not paid in full. I have gotten over $2000 cash back in the past three years. So lets say I did miss a payment and had to pay a penality, I still would be way ahead of the game. I have a budget and I stick to it, whether I am paying cash or credit. In fact the cc statements actually let me identify our spending leaks more easily so we can fix them each month. That being said, I do think there are some who can not use a cc wisely and therefore stay away from them. You need to figure out what kind of person you are and act accordingly. For me, the cc is just an added bonus to my life. For some, I know it causes many stressful issues.

By: lulugal11

lulugal11 — Wed, 21 May 2008 14:02:21 +0000

In general some people may tend to spend more…but I think you are overlooking those of us who DO have the discipline to stick to the budget.

If I budget $20 for food then I spend $20 using my card because I treat it like cash.

You make a valid point about people who sometimes go over….but please do not ignore those of us who stick to the budget and do not spend extra just to get cash back.

By: J

Wed, 21 May 2008 04:46:11 +0000

You’ve written a long diatribe that is simply about general lack of discipline.

If you lack discipline, you should cut up all your credit cards, and then get cracking on all the other costs associated with your lack of discipline.

If you don’t, then you can continue to use credit cards responsibly, as I have for the last 25+ years. I’ve never carried a balance, I’ve never had a late payment, and I’ve never really given too much thought to rewards.

A credit card is a convenient financial tool that I am adult enough to use responsibly.

Case closed.