Why I Use Credit Cards More and More (and What Would Make Me Return to Cash)

all credit cards accepted sign

What I am about to say may be shocking to some in financially responsible circles: I use my credit cards more and more each year. Now, to make a disclaimer, I have never been tempted to rack up credit card debt and have only once failed to pay off the balance in full (a mistake I quickly corrected when I received the next statement, as the charges were even higher than what I had calculated). I don’t recommend that everyone use credit cards and would discourage anyone who has misused them in the past from carrying a constant temptation to increase or return to debt. (That would be too much like taking an alcoholic into a bar.)

Those who are not likely to be tempted to overspend, however, might find the same benefits in credit cards that I have been discovering. I used to see credit cards only as a way to avoid carrying too much cash (which, due to my absentmindedness, I am always afraid of losing) and to delay paying large bills so that I could eke a bit more interest out of my savings account. I never used plastic for any purchase under $10.00.

Now, however, I find myself paying for small transactions (as little as $3.00 at times) with credit cards. Why? The reward points I earn bring in more money than the checking account from which I pay the credit card bills. Most of my retail transactions are small, so I figure that the small amount of money I earn on each purchase will add up fast. (It does.)

I have even begun paying for large electric bills with credit, despite the $3.95 transaction fee that used to discourage me from doing so. My credit card gives me 3% back for utilities purchases (more if I let my cash back accumulate to $200, at which point Chase pays a bonus of $50), so any bill over $150 will earn me more cash rewards than the cost of the transaction fee. Twice, the credit card company has offered 5% back on utilities as part of a special promotion. At those times, we had extra cash, and none of our investments were paying 5%, so we charged more than our current bill — the $600 maximum allowed by the electric company — to reduce the effect of the $3.95 charge on future payments.

I use only cards with no fees and refuse to pay extra for special protections the cards offer, but I still have the extra reassurance of free no- or low-liability features that prevent me from being financially responsible if someone steals my card. If I lose my wallet, I am less likely to take a big financial loss now that I have been spending mostly on credit than when I paid mainly in cash (assuming the finder uses my money/credit but doesn’t steal my identity).

The snippet I saw of a recent television interview with Frank Abagnale, Jr. confirmed these thoughts. Abagnale, the con-man-turned-security-expert whose story is the basis for the book and movie Catch Me If You Can, explained that he always chooses credit cards over debit cards because they are far more secure. If you use a debit card and it’s stolen, he said, your checking account is wiped out. With credit, the credit card company takes most of the loss.

Knowing how much damage credit cards have caused in the lives of those who have fallen prey to their charms, I still feel a bit like I am flirting with a seducer whenever I start charging something I never would have charged in the past. I want to use cash more often, but that longtime beau seems to have given up the fight for my loyalty.

What would bring me back to cash? Financial incentives. I would love to see more stores offering discounts for those who pay in cash. After all, the store loses money every time I pull out my credit card, especially for that $3.00 transaction that pays me a dime. Digital Transactions magazine estimates that U.S. merchants paid bank card issuers $40,000,000,000 in 2007 for the privilege of taking plastic from customers (“How the Merchants’ Courthouse Capers Have Paid Off,” Digital Transactions, February 2008, p. 6).

If more of those retailers would start offering lower prices for those who use cash, they would be able to keep more of the profit. Cash-carrying customers could keep more, too. Only the credit card companies would lose. Of course, though they’d miss the stores’ fees, they’d be glad to lose the business of cardholders like me, whose cash back redemptions always exceed their (nonexistent) finance and interest fees

Image courtesy of szlea

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34 Responses to Why I Use Credit Cards More and More (and What Would Make Me Return to Cash)

  1. eden says:

    You’re never going to see a ‘discount’ for people who use cash. Most (I think all) credit card companies have a provision in their vendor agreement that prohibts stores from charging different amounts to customers who do or do not pay cash. The only place you’ll see the ‘credit card processing fee’ (like with your utility) is for items where the vendor is legally prohibited from incorporating the fees into the cost of the good or service (usually utilities, rent, tuition).

  2. d.a. says:

    If I recall correctly, gas stations (waaaay back when) used to charge different prices for cash and credit. Like @eden writes, however, provisions are now in place that prohibit such a practice in most cases.

  3. gina says:

    Credit card companies are purely evil entities that prey on consumers. There isn’t one good thing about them and the ruin the lives of millions of people every year. By using them, you are encouraging the credit card companies to continue to abuse people and keep our nation poor.

  4. Cortni Marrazzo says:

    I use credit cards for everything I can charge. I pay them off at the end of each month and they’ve done nothing but ease my financial life by giving me cash back and simplifying many monthly purchases into only one payment a month. Credit card companies only hurt people who use them irresponsibly. They never force you to charge money and carry a balance. They can only charge people who let themselves be charged by carrying a balance. I’ve never known a financially responsible person who’s been “abused” by a credit card company.

  5. dean says:

    I get so tired of people blaming all their financial problems on others. Credit card companies never force you to accept their cards or make you spend money you don’t have. Freakin take some responsibility. You got yourself in debt, not the credit card. Even if you didn’t understand what you were getting into, it that the credit card company’s fault? No, it was your responsibility to understand before accepting the card. If you were too lazy to read the fine print, then you have only to look at yourself for any of the problems it caused.

  6. Karen Wheless says:

    I used to live in New Jersey (one of only two states where you can’t pump your own gas!). It’s the only place I’ve seen cash-only gas stations. I don’t think the stations can charge different prices for cash and credit, but they can only accept payment in cash (and therefore charge less than their competitors). I always went a couple of blocks down the street to buy at the cash-only station, since it was often 8-10 cents less than the other stations. Since you have to give your payment to the attendant and wait for it to be processed (whether cash or credit), it wasn’t a big hassle to use cash and wait for change. Definitely worth it for the savings!

  7. david says:

    I love my credit card. It gives me cash back and many more protections than cash would give. I always pay off my balance each month. If you do that, then the interest rate is never an issue.

  8. Brooklyn Girl says:

    Gina, this article was exactly about good things credit cards give.

    Consumers who buy stuff they cannot afford ruin their own lives. I have not yet seen how CCs abuse people who pay their bills in full and on time each month. We’ve only been getting rewards, simplified purchase tracking and convenience of not carrying cash.

    Did a credit card company held a gun to your head and forced you to charge stuff you could not pay off in full at the end of the month? You chose to do that, for whatever “good” reason (and that reason is not a cc company’s problem, they are in business of lending money, they are not your parent). You are an adult who made choices, and you are responsible for them.

  9. Mike says:

    I received almost $1300 cash rebate for my AMEX blue last year. I charge EVERYTHING…super convenient. I have most of my bills set up on Auto-pay with this card too. I pay the card off every month and even if I missed a month or 2 the Rebate would FAR outweigh any interest.

  10. Stein says:

    Just like 0% offers and $0 down home loans, this too will end. The only goal is to get everyone using them, then scale back the rewards.

  11. Mike says:

    Gina…I think you need to re-evaluate your message. That would be like saying this Sub-prime mess was not cause by people buying homes they could not afford.

  12. gina says:

    It bothers me that people defend credit card companies. Just because you use your credit cards responsibly doesn’t mean that credit card companies don’t prey on those that don’t know better. They say one thing in their advertising and then bury the truth in fine print that nobody ever reads and they make it so small that people can’t read it. If they were responsible, they would show all the fees and interest rates and penalties in big letters upfront, but then nobody would ever use them. So they hide them and then blame the consumer for not reading what they purposely hide. Then all of you defending them makes is look like it is the consumers fault.

  13. Derek says:

    My local grocery store gives what is essentially a 0.5% cash-back incentive to use their bank’s debit card at the store. So, it’s something.

    And Canadian Tire will give 1% in “Canadian Tire Money” — equivalent to cash in their store — for using cash or debit.

    (My grocery store does give a 1% reward for using their credit card — double what it is for the debit card).

  14. Hilary says:

    I do agree that credit card companies exploit people who are financially strained.

    However, I must say that I am totally with Shannon on this one. I have the same credit card, and I use it the same way that she does. I get so angry when people tell me that using credit is “irresponsible”, because for me it’s the opposite. I get more cash back, plus I earn interest on the money I use to pay the card off at the end of the month by letting it sit in my high-interest checking account for longer (I use the automatic payments, and pay at the last possible minute). I’m so glad someone finally posted on this, it seems like times have changed and the conventional financial wisdom is no more.

    Also, out here in CA, Arco gas stations only take cash or debit, but are about $0.15 cheaper per gallon. I calculated it, and it’s cheaper to go there than to use my cash-back credit card.

  15. Grigory (rhymes with "glory" :) ) says:

    2 Shannon: Thank you so much for posting this. 🙂 I’ve been reading dozens of personal finance blogs for a long time, and it’s all the same – “credit cards are evil and should be hidden in your freezer.” My opinion on them is same as yours – though I would add the benefit of building up your credit score. 🙂 And as for the people who don’t use them – well, they’re basically throwing away their money if they refuse to use a card with cashback or reward points.

    2 Gina: It’s all about personal responsibility and education. If you know what the terms in contract men, and if you get a magnifying glass (you can get one at the local $1-store), the fine print won’t matter. 🙂 As for benefits of credit cards, once again – you can use them to improve/build up your credit score, which will eventually result in better terms on your car/mortgage/business loan, etc. May I ask why you’re so hostile towards credit cards? It seems like either you or your close friend/relative had some bad experience in the past…

  16. gina says:

    Of course I have had a bad experience with them. Everyone has. They are just out to make a buck on those that can least afford it by raising rates for no apparent reason and giving out fees left and right.

  17. Grigory (rhymes with "glory" :) ) says:

    Gina – could you give us some details about your bad experience with credit cards? If you want, I’ll share mine – even though it’s been all good: I’m a 21-year-old college student, about to graduate, and I applied for my first credit card as soon as I turned 18. I had carefully researched my options and got the best credit card I could. Ever since, I’ve been making all of my payments on time, haven’t been charged with any fees and got lots of rewards for using my credit card. 🙂

    As for the poor people – it’s all about education. Learn what the terms of contract mean and read the damn thing. Many people think that a credit card is free money… If it were up to me, I’d only issue credit cards to the people with a sufficiently high IQ level. 🙂

  18. ongrowthtrack says:

    The credit scoring models are being enhanced by how you pay rent and utilty bills as I covered today. Its good to start towards good credit history.

    Cash management is expnsive and electronic transactions of CC reduces that, so you cant expect a discount if you pay cash.

  19. Badger says:

    In my job, one of the best developments of the last few years is that more and more places in Latin America take credit cards. I have a card that does not charge a foreign transaction fee, so it’s just more convenient to use the credit card than to get the foreign currency. However, in some places (Costco stores in Mexico, for instance) you do get a discount for paying in cash.

  20. Patricia says:

    I completely agree with this post and use my credit cards the same way Shannon does.

    Personally, I don’t understand the allure of the debit card, which most people tend to favor over the credit card. For some, I suppose it helps them budget. However, it forces you to have extra cash sitting in a checking account doing nothing. I keep my checking account balance very low unless I know I have a payment going out. Otherwise, I keep everything else in high yield savings online. Perhaps someone can explain to me why debit cards seem to be more popular since they offer less flexibility?

  21. gina says:

    Well, for one, I was never told that my “fixed rate” credit card could jump from 9% to over 30% on the credit card company’s whim. Advertising a credit card as “fixed rate” when they can change it for any reason they want is a bold face lie. Then when they did that and the payment soared, I got all kinds of penalties when I couldn’t make the minimum payment amount.

    I realize that it was my fault that the card was maxed out, but it was their move that forced all the penalties that made it so I couldn’t keep up and completely ruined my finances.

  22. lulugal11 says:

    I use my credit cards too for a all the purchases I can so I build up my cash back.

    My apartment complex lets us pay rent without a fee so that helps build up my rewards too.

    I do not even carry cash….in fact if you find cash on me it will be pennies that I have picked up off the ground.

    A lot of my friends (and other bloggers) think I am crazy…but since I pay off the amount within two weeks of using the card I never pay fees for purchases, don’t carry a balance and build up my cash back!!!!

  23. Christina says:

    I’m with gina. People will defend them until the credit companies scale back and retract their offers and the perks are gone, and then they can’t whine, because fingers will turn on them: “OH. MUST HAVE BEEN SOMETHING **YOU** DID.” Gee, maybe it was the 0% offer I took from my credit card company to invest in higher-rate short-term returns and paid back in full on time that made them not offer it to me again. Maybe it was my paying in full and on time for years that made my credit card company falter and get swallowed up by a bigger bank that reduced my grace period. It’s **NEVER** the credit card company’s fault. Bollocks, I say.

    I like credit cards for buying items online, and making travel arrangements, and emergency purchases, but not much else. I know the cash back offers have been decreasing in size, from reading Discover card users, and I know that the cash back offers are dependent on a huge supply of debtors who are somehow okay with paying 32.99% APR. Not so many of them now.

  24. RMac says:

    The reason stores do not offer discounts for cash is that studies have proven over and over that we spend more using
    plastic. There is no emotion tied to flipping a card on the counter. Therefore the fees charged the stores do not matter when we spend 12-185 more on average using plastic. McDonald’s increased their average purchase by 305 when they switched to taking plastic.

  25. Grigory (rhymes with "glory" :) ) says:

    2 Christina:

  26. Hilary says:

    I recommend watching the documentary “Maxed Out on Debt” if you think it’s always the person’s fault.

    Grigory, I know you mean well but you have obviously never been in debt and never seen hard times… telling a person how you’ve made all the right decisions and how they haven’t doesn’t help them at all, and it shows how privileged (and oblivious to that privilege) you are. For example, you said you were able to get a credit card with rewards without any credit history. If you weren’t a college student, however, there is no way you could get a credit card like that – instead, you would have to back it with a deposit and pay an annual fee. The reason you were able to get one as a college student is because banks assume that college-student-parents will bail them out if they get in debt. This is just one example of your privilege that you weren’t acknowledging…

  27. Hez says:

    Although I mostly agree that it’s the individual’s responsibility to know what they’re signing up for when getting and using their credit card, I think it’s too nonchalant to say it’s simply a matter of people not bothering to read the fine print. The fine print is purposely difficult to understand (important bits are buried under a ton of legalese, the names of services get changed), which makes it easy for those lacking financial skills to get in over their heads. Even people who are financially savvy can get burned.

  28. Christina says:

    What brought me to cash were the reduction of grace periods, introduction of binding arbitration, and default pricing. I read the terms and conditions agreement. The way I see it, if MY credit record is improving: from a $2000 initial limit to $67500, and getting rock-bottom lowest mortgage rates, and the credit card company still have to introduce the garbage 20-day grace periods, binding arbitration and default pricing to my terms and conditions agreement, it’s not because **I**’ve done anything wrong or am not honoring the agreement.

    I use a credit card, but through my credit union, which has the good sense not to push that kind of terms and conditions agreement on me. 25-day grace period, average daily cycle billing, and no binding arbitration. Viva le consumer!

  29. Rico says:

    Credit Cards are just another middle man focused on relieving the consumer of their money. It’s just not all out in the open. Merchants pass all of their fees and other credit card processing costs on to you. The credit card company than fools you into believing that you are receiving an incentive for using their card when in fact the incentive is not to use cash because you are ultimately getting less for you money with the built in credit card processing fees. Cash usage will gradually as more and more consumers become wise to this.

  30. thehungrydollar.com says:

    I stopped using credit cards for anything other than emergencies a while back, but unknowingly replaced it with another problem. Debit card addiction! I would swipe my debit card for everything and not realize until it was too late, just how much I had spent. This caused me to start carrying cash. It’s hard to ignore how much your spending when your wallets empty! It worked for me, but everyone’s a little different. You have to find what works for you…

  31. katie says:

    Right on Shannon! My husband and I have been using our no-fee, cashback Visa for every expense that dosen’t charge a “convenience fee.” We always pay on time so we have no interest or fees. Last year we earned 300.00 just for using the card!

  32. N Lewis says:

    I do exactly like
    szlea and Courtni. I use a credit card, over a couple of dollars, anywhere that takes them. Am very frugal shopper and seldom give in to “I want” vs “I need” very very occasionally. The odd time will buy bit extra at a food store if is a good sale, take advantage of all seniors discounts when needed, and got 30% off a $10 order last week at the Bulk Barn, buying only what I went for.
    Rule #1 pay in FULL every month! Never have paid a cent of interest. My bank card has the usual points, but can food shop at their discount food store with them and doesn’t take much to spend $20 even for one person occasionally.
    If I can get $100 or so free every year, that is money in my pocket
    Try keeping track of what you buy on sale vs regular price, points used etc and you will be amazed.
    Just make sure they are paid IN Full and ON TIME each month and you are beating the system. O yes- no fee cards only please!
    Nancy Lewis
    Toronto Canada

  33. N Lewis says:

    Written by: Patricia
    Posted on: March 11, 2008 at 7:56 am
    I completely agree with this post and use my credit cards the same way Shannon does.

    Personally, I don

  34. Lillian says:

    I agree, if your going to spend the money anyways, why not get something for it.

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