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How to Go Cash-Only

How to Go Cash-Only

Just a few short months ago you made all those resolutions. Many people promised that this would be the year they got their credit card use and debt under control. It's April. How are you doing?

Truth is, sometimes you have to take seemingly drastic measures to get results. If you want to tame the debt beast you may have to go cash-only. That may be a hard pill to swallow for some. Cash is almost a foreign object. In the 2014 Parents, Kids and Money survey conducted by T. Rowe Price, just 12% of parents polled said they use only cash for everyday purchases and 28% said cash is obsolete.

Here's how to make cash king.

Change your mindset

As soon as Leslie Tayne, a financial attorney, specializing in debt issues, begins working with her clients she encourages them to start living a cash based lifestyle. "In today's world, there is no need for a credit card. You can use a debit card or pre-paid card in most situations, in lieu of a credit card. Using cash relieves you from having to worry about accrued interest or late fees. Some people think they need a credit card, but it's not necessary."

It's easier to stay out of debt if you use debit or cash for your purchases.

Reap the rewards

If you need a little incentive to get going, Gail Cunningham, a spokesperson for the National Foundation for Credit Counseling offers the following, "Our observation has been that people who live on a cash basis end up saving approximately 20% of their previous spending level, and they don't feel deprived."

people who live on a cash basis end up saving approximately 20% of their previous spending level, and they don't feel deprived

She explains why, "Their spending awareness level has risen, thus they are making mindful, as opposed to mindless, spending choices. The result is that they purchase exactly what they intend to, and enjoy the savings."

Stay within your budget

Using cash or debit cards can be an effective way to live more within your means. You take out a certain amount of cash, instead of using a credit card, which often results in spending more money, and likely what you can't afford, if you're charging in the first place.

"A cash-only diet reinforces your budget," says Elle Kaplan, CEO and founding partner of Lexion Capital Management.

Know the drawbacks

Cash may be king, but that's not to say it's a panacea. For one thing, there aren't as many protections with cash as with credit.

"Be aware of store policies whenever making purchases to ensure that the item is returnable, or under a limited warranty," says Tayne.

You may not be able to complete transactions such as reserving hotel rooms, vacations, or renting a car without a credit or debit card.

Carrying large amounts of cash is no doubt ill advised. You can lose it, or it may be stolen, which is all the more reason to have a debit card "Don't let safety be a reason to shy away from going off the credit card grid," says Cunningham.

Keep one card

Even though you decide to "convert" to a cash-only lifestyle, you may want to keep at least one card open, in case of a legitimate emergency, says Tayne.

If you are looking to get a loan in the future, whether it's personal, mortgage, or car, be aware that closing all of your credit cards in a short period of time could have a negative effect on your credit score and could cost you the deal, she warns.

If you choose to not close the cards and commit to not using them, with the exception of emergencies, make sure you still regularly check your accounts to ensure there is no fraudulent activity on the card.

When you must use a credit card, pay the balance in full.

Says Tayne, "Getting off the 'credit card drug' can be hard, but once done, you gain the benefits of freeing up cash flow, sticking to a budget and having money to pay for other expenses."

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pua   |     |   Comment #1
It's good advice to be debt-free, but it's bad advice to use debit cards instead of credit cards.  The important concept is to be debt-free at the end of every month.  Credit cards have no interest or service charge so long as the balance is paid in full every month..  There are many credit cards which have no fees.  Some credit cards pay YOU a rebate between one and five percent as a reward for using their card (because the merchant pays a fee to the credit card company for everything paid for with the card).  A credit card provides far better security than a debit card, including help with canceling charges for products which didn't work as the advertising said they would, reversal of unauthorized charges, free insurance for car rentals or products, doubling of manufacturers' warranty periods, etc.  And you continue getting interest on the money in your bank account for the several weeks it takes for your credit card statement to be printed and until you pay off the balance.
Anonymous   |     |   Comment #2

I think you should have been the one writing this article.
Anonymous   |     |   Comment #3
Pua is exactly right. I try to put everything I can on the credit card that pays most rewards, pay it off every month, and average $100 in cash rewards each month. 
gli   |     |   Comment #5
Even assuming  an average of 5% back (5% normally requires certain categories only that rotate quarterly) to earn your stated "$100 in cash rewards each month" You would have to spend:

$2,000 x .05 = $100
$3,333 x .03 = $100

Nevermind that a 5% average return is highly unlikely (groceries, gas etc... are different categories and discount stores, like target, walmart etc... are not coded as grocery etc...) and most credit cards are capped per quarter spending.

Greater than $2,000 spending on a credit card every single month sounds like a careful review of expenses is in order (unless somehow the mortgage is in there/HOA fees etc...) That is a lot of money to lose each month for a paltry % amount back.

I just wanted to illustrate how much in dollar spending would have to happen at the BEST possible (5%) return rate to actually pull in $100 in cashback.

Cashback is nice (better than nothing) but spending to save is a fool's game.

Last comment - Those who do pay in cash - are paying a premium for the majority that pay via debit/credit - as the merchant has to cover those costs. So in essence - cash payers are giving up at least (1% minimum on all purchases) by using this method. YMMV
carly   |     |   Comment #4
I went cash-only and every-penny-accounted-for in October 2012 because I was getting ready to leave my job and go back to school and was very worried that even with all the planning I'd get killed financially.   I have to say that its paid off tremendously--even with much less coming in every month, I have much more left over at the end of the month.  Counting out those 20's hurts, and I have more than once thought twice about a purchase--and then decided to skip it.  It's just too easy to whip out that debit or credit card and not think about the true cost.
Anonymous   |     |   Comment #6
This is the danger of credit cards.  The cash back is good; but its too easy to spend with a credit card.
James Barnes
James Barnes   |     |   Comment #7
I use a credit card myself, but it probably leads me to spend more.
Anonymous   |     |   Comment #8
When spending cash, one tends to be more careful.
paoli2   |     |   Comment #9
The main positive about having a credit card with me is that I can take advantage of unexpected sale items when I am in the store.  I may not always bring enough extra cash but with a credit card I still can buy more of the sale items I know I will be needing.
RJM   |     |   Comment #10
I use prepaid gift cards myself that I buy at a discount. But, I don't have a spending problem at all.

Almost never use cash.