Citi Bank Credit Card

If you have cash to cover everything you charge, and pay off your balance in full every month, then you'll never pay more simply by using plastic. Also, in addition to the potential for earning rewards and miles, during the month before your charge bill comes, your money can be working in money market accounts.

No, this is exactly the point I've seen disputed in a variety of personal finance type books. Of course, I can't cite any studies for you, so feel free to disregard my argument, but according to the books I've read, there have been studies that show that people tend to spend more when they use plastic rather than cash. (Of course, I understand you won't pay finance chages or interest if you pay the balance off each month.) Anecdotally, in my experience, this has been true. When I went to the "cash only envelope system" for my grocery budget, our monthly outlay automatically dropped at least 25%. For me, there's just something that's psychologically different about cash. I weigh purchases differently when I have to part with cash. Stupid, maybe. But true. So I've always figured I save more using cash than I would earning a free plane ticket every other year. But again, that's just my experience. I'm sure everyone's different.

With regard to your second point, this is such a small amount of money that it's hardly worth the five minutes it takes to pay a credit card bill online. Currently we get 4.4% in our ING account. Some money market account may pay as much as 5% right now (if you have a better one, please let me know!). On average, I'd have maybe $1500 more in savings on the credit card plan, so I'd be making a whopping $66 a year from my savings account. Again, in my experience, this savings is absolutely dominated by what I save on groceries alone using cash.

(Can you tell I'm our family CFO?)

Just my experience!

I see your first point -- e.g. some people tend to spend more if it's easy (unlike cash which usually seems harder). So, if that's the case for you then staying away from the credit makes sense. I don't think it's impossible for someone to keep to a strict budget and pay with credit but it may be that that's the case for many people.

To your second point, no I don't have 5% bearing MM right now, but in situations where the credit card balance is greater than $1,500 per month, I wouldn't sneeze at say a few hundred per year in interest compounding over time plus whatever card rewards offered. But, I suppose if I went back to your first point and found I was spending much more than that savings by the ease of credit, I'd be cutting off my nose to spite my face. But if that wasn't the case, I wouldn't turn away from a few hundred a year in interest.

you're so even-handed Kevin. I often wonder if you're like that IRL, too.

I don't think it's impossible for someone to keep to a strict budget and pay with credit.

I totally agree. Definitely possible and I'm sure many folks do it. On the other hand, I was shocked by how easily and painlessly I trimmed our spending by moving to "cash only". I was really kidding myself before! I have to wonder if other people wouldn't have the same experience. Especially given those mythical studies that I swear I've read about.

Yes, I'm Solomonic (if I'd have to use an adjective). Just kidding.

Gosh, right now I'm sad that I made myself sit down and actually create a realistic budget for the specialty #1 interview trail. I want to :! from the reality of this budget. A lot of dough will be spent.

Oh, yeah tomorrow night I'll sit down and create a budget for specialty #2 interview trail.

I suppose you know what that means.

And I will pray tonight that a situation doesn't arise in which both will be melded into one long, bitter trail.

Especially given those mythical studies that I swear I've read about. Mr. Green

No, I don't doubt the studies or your experience with your plan. Do you think you'd have achieved the same budget reduction results if you simply created a budget and then made yourself keep track of every expenditure on a spreadsheet or something (without changing to cash). Or was the cash critical in your case?

We have the United card with a different option -- a mile for every $2 and no annual fee. Or something like that. The card we use the most is our REI visa. It's a 1% dividend on your annual charges. I can always find something I need at REI. Or at least find something I really need like jackets for the kids, etc.

Do you think you'd have achieved the same budget reduction results if you simply created a budget and then made yourself keep track of every expenditure on a spreadsheet or something (without changing to cash). Or was the cash critical in your case?

Well, I did that. I've used financial software for years. It was realizing, month in and month out, just how much money we were spending on groceries (for example) that made me switch to cash in the first place. So for me, the cash element is critical. I got lazy a couple of months ago and slacked off on the cash. And presto! The grocery tab automatically sprung back up. So now, it's cash for me. Apparently, I have no self-discipline with the cards.

But, like I said, I'm sure everyone is different. We all have to do what works for us! I'm just not 100% convinced that those points and airline tickets and whathaveyou are actually as free as they appear, ya know?

Sorry to belabor this, but just one more: it's not peer-reviewed, but Motley Fool has an article about the recent trend of fast food restaurants to accept plastic.

"People spending plastic money often spend more than they would with cash. You might not want to part with one more greenback in order to top off your lunch with a hot fudge sundae, but if you're charging it... what the heck? At Wendy's, plastic purchases have run about 35% higher than cash purchases -- about $7 vs. $5. That's a big difference."

Now, obviously, part of this effect is that the higher the bill, the more likely you are to reach for plastic (i.e., the correlation runs both ways). But still, we're taking about a 40% increase in spending!

(I swear, I'm done now.)

[Vishenka69]

We have 3 cards, one has miles, one cash back and one points. I figure if you're gonna use plastic, might as well get something in return. We also use credit cards to pay for utilities, cell phones, tolls and gas. The cash back, miles and points sure do add up.

I actually found that it's easier for me to track spending if I charge everything. Whenever I take cash out of the ATM, I have no idea what happened to it when it disappears a few days later. I don't whip out my credit card for a small purchase but don't think twice about plunking a $5 bill. I guess that makes me the opposite of most people.

[MissCrabette]

That makes two of us, Vishenka. I'm the exact same way. With a card, I can always go online and see where my money went. With cash, I can never remember how much I've spent and on what.

Other than that, I do what Kevin does. I pay my cards in full every month, but not a minute too soon because I like knowing my money is working for ME and not for the credit card company.

On the other hand, I totally see toronja's point of view, but only when limiting myself to one category. Say if I kept all the grocery money in one envelope and only spent it on groceries. If I had a big wad of cash for all my monthly expenses, I'd be a mess trying to figure out where it all went.

[Stella]

I use my debit card for almost everything because I can keep track of every expenditure. I use cash if I have it on hand, but that is rarely. I use my credit card for gas and car washes and that's it.

[DCJenn]

We are also a debit card only family. Our bank does give 1% back AND give points for purchses, even when using the debit card. Oh, they also give 1% back monthly for all purchases that are 'credit' rather than 'debit'. (why it matters to them, I have no idea because it's all immediately removed from the account!)

I have everything that I can on the debit card, and everything else comes directly from the checking account. The online checking account is a lifesaver for us.

We rarely use credit cards- emergency only type stuff. and it's paid off monthly. Even if we have a balance, these days, if there's an emergency, the amount we had to used is paid back plus the regular monthly payment.

In fact I write one check a week-for daycare. and that's it for the month. Everything else is done online or w/ the debit card.

Jenn

(why it matters to them, I have no idea because it's all immediately removed from the account!)

Processing arrangements and fees they can charge retailers. Our bank in Cleveland actually charged us when we used the 'debit' option to pay at Target, etc. rather than the 'credit' option w/the same card. $1.50 each time (and not just for 'cash back'.

Currently we get 4.4% in our ING account...(if you have a better one, please let me know!)

Not trying to push anything here, I promise, but wanted to let you know about a couple online savings accounts with 5.05%
https://www.emigrantdirect.com/Emigrant ... /index.jsp

http://www.hsbcdirect.com/1/2/1/offer?code=PPGC250000

Supposedly no fees and no minimums. Just wanted to pass this on.