This is a guest post from Kevin Mercadante of Out of Your Rut. Kevin is also author of Lighten Your Load, an e-book focused on reducing living expenses while still maintaining a comfortable lifestyle.
Credit limits are cut. Interest rates are increased to 29.9% after just one missed payment. Rewards programs are reduced and perks eliminated. Credit card “agreements” are now dozens of pages long, and written in some language you can almost decipher, but you’re pretty sure it isn’t English. $39 overdraft fees have become the new standard on checking accounts. And now the darker side of debit cards has started to emerge.
Do you ever feel the desire to somehow fight back, to say I’m done playing this game? Well, maybe there’s a way…
How did we get to this point?
In Five Secrets Your Bank Doesn’t Want You to Know (Yahoo! Finance, August 5th), Laura Rowley writes:
“Banks are squeezing customers with historically high fees and penalties, from overdraft charges to account service fees to new surcharges on foreign debit transactions…
Last year, overdraft and insufficient-funds charges totaled nearly $35 billion and comprised about 90 percent of banks’ consumer-fee income, according to a study by the consulting firm Bretton Woods Inc. Three-quarters of banks automatically enroll consumers in their “overdraft protection” programs without formal permission, and more than half of banks manipulate the order in which checks are cleared to trigger multiple overdraft fees, according to a Federal Deposit Insurance Corporation study.”
Increased fees and restrictions aren’t a figment of our imaginations, but we’ve all gotten so comfortable with the way things are that we pay these fees, complain to our friends and neighbors about it -â€” or sound off on weblogs â€”- and then… We continue to pay them. As long as we keep this up, banks won’t have to court us as customers, and we’ll get what we richly deserve.
I’d like to suggest that the best way to fight back against the relentless skimming of our financial accounts is to limit their use. While it isn’t practical to completely eliminate banks from your life and still be fully functional in the modern world, we certainly can reduce our usage, and therefore our exposure to the increased fees, interest rates, and restrictions.
Cash on the barrel
Talk about using cash, and you get the usual litany of drawbacks: there’s no buyer protection on purchases, you won’t earn credit card rewards, if it’s stolen you can’t get it back, “I’m not comfortable carrying around hundreds of dollars,” and so on. All of these objections have some merit, but I’d also suggest that none are insurmountable.
In fact, by accepting total reliance on bank cards, you’re accept a different set of risks. It’s unfortunate, but there will be advantages and drawbacks no matter how you proceed, which is why it’s never in our best interest to take any one method off the table entirely.
The advantages of paying with cash:
- You will never pay more than you can afford for anything, the way you do when you pay with credit. In other words, no more month-end spending hangovers.
- You will be more likely to stay on budget; studies have shown people will spend more if they pay by credit card than by cash.
- Though you can lose your cash to theft, your loss will be limited to the amount of cash you had with you. But there is zero chance of identity theft because cash carries no record of you.
- With credit and debit cards, a paper trail is created each and every time you have a transaction, so paper with identifying informationâ€”often including your signatureâ€”is floating around all over the globe. There is no paper trail with cash, other than the receipt, which will be in your possession.
- Cash is the ultimate form of financial simplicity. You pay and you go, and there’s no chance that additional charges can be added to your bill after the fact. There are no “gotcha provisions” with cash as there are with credit cards.
- Privacy. When I was in the mortgage business, people were often hesitant to turn bank statements over to us because there was a record of their every move showing up; where privacy is the issue, cash is the best transaction method by far.
A happy medium
By creating a tiered spending system, we can minimize reliance on bank cards without eliminating them entirely.
Consider using cash for routine purchases, especially for anything under $100, where most transactions fall. Is it really worth incurring transaction fees, or risking overdraft/overlimit charges or identity theft in exchange for the convenience of being able to swipe a card for a $3 cup of coffee?
Use debit cards for purchases in excess of $100, which will also minimize the amount of cash you need to carry. An exception is gas purchases, since there’s a major advantage to swiping a card at the pump as opposed to abandoning your car to pay a store clerk for an undetermined advance purchase.
Finally, restrict credit cards to an only-as-needed basis. This would include major purchases where buyer protection is advisable, or airline tickets if your card offers travel insurance.
What ever combination you settle on, the important thing is to come up with a mix that will reduce your reliance on both credit and debit cards, and the fees, high interest, and other restrictions that come with them.
How do you feel about switching to cash for your everyday purchases? Are you for it or against it? Why or why not?