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conducted by T. Rowe Price, just 12% of parents polled said they use only cash for everyday purchases and 28% said cash is obsolete.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."
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."