I applied for my first credit card, a MasterCard, shortly before starting my freshman year of college. My limit was $200. The first time I used it was that spring break, to buy a shirt. I still have the card in my wallet, nearly 15 years later.
My parents drilled solid financial advice into me when it came to credit cards. Save it for emergencies. Pay it off in full every month. Don’t buy something with it unless you have the cash in the bank to pay for it right then and there. Only get a card if it has a long grace period to avoid interest and fees.
I didn’t fall prey to the “sign up for a card and get a T-shirt” tables in the student union. I stayed in control of my spending.
Confession: I did pay interest and fees, once. I needed cash, so used my credit card at an ATM. My bank didn’t offer debit cards yet. I had no clue how expensive cash advances were. I never did it again.
Follow-up confession: I needed the cash because I was at a bar and wasn’t yet 21, so obviously couldn’t write a check. I don’t think I did that again, either.
But through the years, I did start to use my card more and more. My credit limit increased. I got a Visa card that offered rewards. Businesses stopped taking checks. Banking became paperless. Today I use my card for everything, still paying it off in full every month.
In general, I’m a fan of credit cards. They help build your credit score when used responsibly. They’re convenient, letting us pay some bills automatically. They offer rewards, basically a discount on everything you buy. A piece in the Dec. 24 issue of Forbes magazine suggests cash-back credit cards, when paid off in full every month, are one way to capitalize on others’ financial stupidity.
But, as I wrote in an article about credit card traps in Thursday’s SheSays section, many people don’t use them wisely. They use them to live beyond their means.
Gail Vaz Oxlade puts people she counsels on her TV shows on a cash-only diet, confiscating their plastic. Financial guru Dave Ramsey draws a firm line against credit cards.
While I don’t fully agree with Ramsey’s take on cards, one of his points hits home: It’s easier to spend more when you use a card than when you use cash.
Ramsey’s website cites a study of credit card use at McDonald’s that found people spent 47 percent more when using credit instead of cash.
You can “feel” cash leaving you, Ramsey says. You’re more aware of your spending when you use real money.
I realized this last year when I took on a grocery spending challenge, limiting myself to the federal thrifty meal plan food budget for three. I used cash envelopes to keep on target. But one day, absentmindedly, I used my card.
While I could tell you to the penny what I spent on the grocery trips where I paid cash, I had to consult my receipt to remember how much I spent when I swiped.
Plus, my 2 percent rewards card isn’t doing me much good if I’m spending more than I otherwise would.
So I decided to take on another personal challenge: to live one month without my cards.
I’ll spend cash for all the things I typically use my credit cards for, like groceries, household supplies and gas. I’m dreading having to take both my squirmy kids inside the station to pay.
My plan is to take $140 from the ATM each week, aiming to spend less. If a major expense comes up, I hope I can write a check.
Because my challenge is for only a month, I won’t cancel the one auto payment on my card (our Internet provider). But I won’t pay other bills online or over the phone. I won’t shop online. I’ll try not to cheat by having my husband pay instead. I’ll have to hold extra tight onto my usually cash-void wallet.
Goodbye, Visa and MasterCard.
Hello, George, Abe, Andrew and Ben.
Sherri Richards is a thrifty mom of two and employee of The Forum.