DH = Dear Husband
When I first read The Total Money Makeover, Dave Ramsey’s call to debt-freedom, I flipped through his diatribes against credit cards as if I were an outside observer. DH and I were not in credit card debt. We paid off our balance each month. We earned points. We used them. We were winning in this game, right? “Wrong,” says Ramsey. He then refers to a study of credit card use at McDonald’s which revealed the fact that people spent 47 percent more when using credit cards instead of cash (Ramsey, 42).
Three Reasons Why We Spend More When We Use Credit Cards
1. Ramsey gives the explanation that is most commonly used: “It hurts when you spend cash; therefore you spend less” (Ramsey, 42). The depletion of money in your wallet is a palpable sign that you are spending too much. The credit card in your wallet gives no such evidence of over-spending.
2. “New Study Shows Why We Spend More with Credit Cards” is an article written November 24, 2011 by Lowcards.com for ctwatchdog.com about a study that examined consumer spending. “Consumers paying with a credit card are much more focused on the product benefits, and they make a purchase based on superior benefits instead of the cost . . . Consumers who pay with cash are more likely to choose an option based on cost, even if that option offers inferior benefits.” When we use credit cards, we buy for perceived benefits more than price, and when we use cash, we buy for price more than perceived benefits.
3. Furthermore, according to the same article, “The study says it’s harder to accurately remember the price if you pay with a credit card.” I can identify with that finding. When I pay with cash, I have to count out the cost of my purchases, and I’m therefore more aware of how much I’m spending. When I pay with a credit card, I can escape into La-La-Land and make transactions with little awareness of what I’m spending. Even with a debit card, I’m more aware of cost because I know that the money is coming right out of our account as soon as I use it. With credit cards, there is a false sense of comfort in knowing that the charge won’t take effect until later. Since you’re less likely to remember the price when using a credit card, you’re less likely to track your spending, and with your head in the sand, you’re more likely to get deeper into debt.
What Does Life without Credit Cards Look Like?
If we spend more when we use credit cards, that’s reason enough for me to stop using them. But DH and I use them as such an integral part of our day-to-day functioning. Generally, when we’ve bought clothing for our children or purchased gifts for birthdays, graduations, bridal and baby showers, weddings, anniversaries, and Christmas, we’ve used our credit cards. We pay for health and dental expenses with credit cards and then get the insurance refund before the Visa bill is due. We buy our gas with a speed pass linked to our Visa. We pay some of our bills with credit cards. We do online shopping with credit cards. When DH travels to the U.S. for business, his credit card allows him to make purchases with no inconvenience.
- First of all, when it comes to clothing and gifts, there is nothing to stop us from using cash. According the study mentioned above, we would spend less on these things if we used cash.
- Likewise, there is nothing to stop us from paying upfront for health and dental expenses and then getting the refund later. It’s a practice that would keep us current in our finances.
- Next, although our speed pass at the gas station won’t link directly to our bank account as a debit, it would not be a bad idea for us to pay cash for gas. The speed pass swipe is far too easy, and it leaves me in a state of blissful ignorance regarding how much I’m spending. I won’t spend less on gas using cash, but I will be more aware of how much it’s costing and more likely to track my expenditures.
- Finally, the Visa debit card is as versatile as the Visa credit card. I knew nothing about Visa debit until I did some research this week. As far as I can tell, it can be used for pre-authorized bill payments, for online shopping, and for convenient travel. It is protected. There are no interest rates involved. There is no annual fee.
“When I am doing an appearance and cutting up credit cards,” says Ramsey, “the emotional attachment many people have to the first card they got in college is amazing. They clutch it like an old friend. Brand loyalty is real” (Ramsey, 46). How silly is that? I thought when I first read it. And yet I find myself, now that I am starting to make preparations for credit-card-cutting, feeling a surprising heart pang for Visa. Visa has been with me for longer than DH has. We’ve got history. But it’s time to modify our relationship. Now that I’m aware of the Debt Matrix fabricated by banks and credit card companies, I have to make a break from this codependency. Still, I have to admit that I find consolation in the fact that the Visa debit card exists. It means the break doesn’t have to be complete.
I used to think that there were two types of credit card users: People who stayed in perpetual credit card debt were the ones being duped. People who paid off their monthly balances were the ones gaining from credit card use. And I had us placed in the latter category. But I don’t think so anymore. If my credit card leads me to care less about price, not to track my expenditures, and to spend more, I’m being duped too. DH and I receive so many invitations in the mail to get more credit cards. We get bombarded with promises of highly coveted points to make all of our dreams come true. “Have you ever asked yourself why they work so hard to get you involved? The answer is that you lose and they win” (Ramsey, 41).