Why This Headline?
I am amazed about how many people recommend paying for everything in cash and proponents of the Dave Ramsey camp encouraging you to cut up your credit card.
Why do I have such a problem with this? Cutting up your credit card to avoid spending does not correct the actual behavior of overspending.
I agree, it adds friction to the process which psychologists believe will interfere with the participation in an undesired behavior. Another example would be to lock your cigarettes in a cabinet and hide the key in a separate location. Why do this? Your lazy ass will be less likely to smoke because you added a layer of friction by needing to travel and get the key, then go unlock it to have your cigarette.
Personally, I think it's avoiding the original problem and instead not attempting to recognize and regulate that you have undesired behaviors and urges that need some attention.
This is similar to cutting up your credit card. If you have poor spending habits, then recognize that and slowly work to control this issue. I am just not convinced that you have to cut up your credit card.
An Argument for Credit Cards
First, I love me some credit card rewards. The guys over at ChooseFI have a great section on their site about travel rewards and credit card rewards.
Cash back. Bonus points. Airline miles. Travel rewards and hotel credits. There are a lot of things to "game-out" and benefit from when it comes to credit card rewards.
No credit card? No rewards.
Let's address the elephant in the room. Why do credit card rewards even exist? At face value, they certainly do not exist to benefit you if you are an absent minded spender who is a glutton for marketing schemes. These rewards encourage spending behavior. Period. You are lying to yourself if you say that rewards will not encourage you to spend more. It will, unless you are hardcore about recognizing your spending habits and budgeting.
Next up, cards can help build your credit score if you pay attention to the following factors:
Why is building a credit score important? The benefits of a high credit score (720+) include:
Another benefit is the added safeguards of carrying a credit card vs. carrying cash all the time. If you think this doesn't apply to you, think again. Lost your wallet? Just immediately call and freeze your credit card. If there was cash in your wallet, likely forget you ever had it.
Pulling out your wallet or money clip and revealing some serious paper is asking for trouble. Remember, criminals are looking for targets. If they see you at the checkout shuffling through your $100 bills to pay for a light bulb you might have an expected encounter on your way out to your car in the parking lot.
Good Credit Habits
Yes, you can be both frugal and have a credit card. I won't tell anyone. Just manage it responsibly and it can be an asset instead of a hindrance. Spend wisely and continue to find ways to improve your saving habits and spending behavior.
Let me know your thoughts in the comments below.
Dr. Jon is a physical therapist by day, and a dedicated frugalist by night, deeply enthralled in the thrill of "pinching pennies" and investing the margin.