It took longer than usual to take up the pen today. Probably because it was imperative to check out the “Every Single Outfit Catherine Wore on the Royal Tour” feature in the Huffington Post.
Having done that, I now turn to more important matters.
Like this cash-or-credit debate taking place in the papers. Financial vigilantes are urging consumers to cut up their credit cards and throw them away. One article in SmartMoney actually sounded the shibboleth: “I’m going all cash!”
To which readers had a range of emotional responses. Two encapsulating these:
“This is simply an irritating article. I am willing to bet $1000 that the author
is lying and in fact is still using his credit cards and not wandering around
paying for everything with cash. If you’re going to write an article, at least
please be intellectually honest. Do you think we are that stupid?’
“Already living this dream. In fact it is a great reality to know that you owe nothing to anyone. We do not have credit cards either, we have covered that with an emergency fund. We own a house (no mortgage) and we have paid cash for all of our vehicles (no financing). As far as I’m concerned, living within your means and being debt free is the NEW AMERICAN DREAM.”
The most compelling reason for getting rid of your credit cards is obvious: ordinary folk have to pay 14% interest on average for them. Yet banks pay less than 1% whenever they feel like borrowing from the government (yes, that includes JPMorgan Chase, Bank of America — even Goldman Sachs and Morgan Stanley, which received “bank holding company” status during the credit crisis).
Kind of annoying that the Big Banks get to play with money for almost nothing, but not us Little People, isn’t it?
Part of the bank campaign for plastic over paper has to do with all the lovely fees they get to rack up every time you swipe your card. Buy food on a flight lately? Notice they won’t take cash? Get a refund from a catalog? Notice they send you a charge card? Even highway tolls, unemployment benefits and tax returns are leaning heavily on credit cards and various electronic schemes. We’ve always known we have to pay for the things we buy. But who ever thought we’d have to pay…to pay?
When it comes to taking miniscule slices of your money billions of times over, there are many ways to skin a cat.
That said, you can be as creative as the banks, if you want to be. Remember, canceling a credit card can hurt your credit score. So pay it off. And lock it away in a safe or put it on a high shelf until the banks are forced to offer rates that make sense again. We should not have to pay 14% interest. That’s ludicrous. The average hedge fund would love to get returns of that size every year. Ordinary consumers should not be expected to offer the returns of hedge funds. Even most hedge funds can’t do it.
As for cash, I have a close friend who’s figured it out. He has calculated his weekly budget for food, entertainment, dry cleaning, et cet, and withdraws one sweaty wad of cash a week. When it’s gone, he does not withdraw again until the next week. By doing this, he spends more wisely and saves on withdrawal fees.
So, credit cards in the closet. Cash under the mattress (or in his case, on the bedside table) and you are all set. Should it be this way? No. But that’s not your fault. Don’t let the banks make you sweat. You make them sweat. Remember, they’re supposed to be working for you. Not the other way around.