Credit Cards

We received a letter from our credit card company about a "change in relationship". There is a lot to "unpack" here so I appreciate your indulgence. First, credit cards can be a slippery slope to debt. I have suggested to my sons that they avoid using them, telling them, "you don't need a credit card" if you have a debit card. This is admittedly a bit hypocritical since I have carried a credit card for lo these many years. A slippery slope comes into play when you charge something without having the means to pay for it when the bill arrives...

There are some good reasons for carrying a credit card:

1) There is a good amount of buyer protection.
2) You don't have to carry a lot of cash.
3) There can be some good "rewards".
4) Often a credit card will cover rental car insurance requirements.

There are also some down sides to carrying a credit card:

1) Studies show that you spend a lot more money using a credit card versus cash.
2) The rewards can be hard to redeem.
3) Fees are steep and interest rates are ridiculously high if you carry a balance.
4) Financing a $5 hamburger can cost you more than a gourmet meal!

The specific reason we carry our current card is that "points" earned can be used to pay down our mortgage. We have used the points to pay $650 off our mortgage balance in the past year. Here is where the "change in relationship" comes into play. The agreement between our mortgage holder and the credit card company will be ending next month. So now we are being courted with a new "cash back" card.

We will likely continue to carry a credit card because it is convenient, we pay off our balance each month, and we actively redeem the rewards rather than let them languish or expire.

The other thing is we have made a paradigm shift in our spending and our credit card use is greatly diminished and will stay that way because we are saving by not charging. We now budget and use cash for most of our expenses and the result is more intentional spending. For example, if we budget $250 for groceries then we stick to our list more closely and don't overspend because there is a fixed amount of cash in the envelope set aside for groceries.

We have been at this cash thing for just over a month and we're adjusting to it but we are spending a lot less because we are using cash and there is a direct emotional and painful correlation when you use those dead presidents (cash) versus the old credit card!

I like the change we have made and I love taking more control of my spending.

PS It really helps that my wife is on board with this whole process.