Updated on 06.05.14

Interest Rates Don’t Matter If You Don’t Carry a Balance: Some Thought on the Cash-Only Debate

Trent Hamm

Earlier today, I read with interest the comments on this Get Rich Slowly article about Suze Orman and the “cash only” movement. In a nutshell, the article advocated (as Suze apparently does now) that people should abandon credit cards because the credit card issuers have been raising interest rates.

To put it simply, the raising of credit card rates shouldn’t matter to a person who has control over their financial life. If you don’t carry a balance on your credit cards for longer than the grace period, it doesn’t matter what the interest rates are.

Based on the comments I read there, a lot of people do the same exact thing I do. I use credit cards for their convenience and the rewards they provide. I pay off the balance in full each month (I pay all such bills on the 1st and 15th of each month, actually, to keep it simple).

There’s one big problem with this plan, some will point out. It puts you at risk. What happens if you can’t pay the balance at the end of the month?

For starters, I never, ever carry a balance that’s more than what I have in cash in my emergency fund. I never even come remotely close. In fact, I never come remotely close to carrying a balance that’s more than what’s in my checking account. If I’m turning to my emergency fund, it’s a genuine emergency, not just a great sale at the store.

Which brings me to the second point – effective credit card use requires a lot of self-control. I am speaking from experience here – I learned the hard way about what damage a credit card can do if you don’t have self-control. It took a mountain of debt and a point that was perilously close to personal bankruptcy (while having a baby at home, no less) to force me to wake up to the truth – that a credit card without self-control is like a chainsaw in the hands of a toddler.

If you aren’t spending less than you earn month in and month out, you should go cash only, because cash provides the hard limits that are needed when you don’t have your spending under control. Credit cards are only beneficial to people who spend less than they earn every month, like clockwork. If you can’t or aren’t doing that, the drawbacks far outweigh the benefits for credit card use.

When the credit card companies raise interest rates, it’s not the financially stable people who are punished – they are often barely aware of rate changes because they’re unaffected by the changes. Instead, it’s the people who don’t have self-control – the people who carry a balance – who are punished by the changes.

Yet again, it’s a fantastic argument for living frugally, responsibly, and below your means – if you do so, the games companies play with credit card rates don’t affect you.

If you’re carrying a balance right now and your credit card company has just adujsted your rates, I have a simple plan for you: cut up your credit card. It’s doing you much more harm than good right now. Then, focus intensely on paying off the debt. Absorb as many frugality ideas as you can and try them in your own life. Knock down your life’s routines and build new ones – your old routines are the ones that brought you to this point. Seek out friends who don’t find their self-worth in the things they have. Seek out activities that don’t drain your wallet.

And gradually, you’ll find that credit cards don’t have to be dangerous – they can merely be useful tools – and that you don’t have to worry about rate changes.

Good luck.

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  1. Great article with no BS, nice work Trent. For a while I went on the “no credit card bandwagon” because I was convinced by the gurus that that was what I was supposed to do to be financially responsible. As it turns out, that approach does little to actually teach responsibility and impulse control. Using a credit card wisely and responsibly does offer some great benefits.

    If a person isn’t able to control their spending, I think it is wise to put it away for a while until they can get things under control but I don’t think credit cards are the root of all evil. If used responsibly, they can be a good tool, despite all of the guru advice.

  2. briandadude says:

    Nice article Trent! While rate increases don’t bother me, some banks (i.e. Bank of America) are experimenting with charging annual fees to those who never carry a balance.

  3. Jane says:

    I see Trent’s point, but even as someone who is fairly disciplined with credit cards, I can still imagine scenarios in my head when the higher interest rates would affect me. What if my husband loses his job at the same time that we have some sort of terrible illness in the family? What if the only way to put food on the table is to use my credit card? In such extreme circumstances, it would matter what the interest rate would be. I feel secure in my finances, but not secure enough to imagine devastating scenarios in which a rate would matter.

  4. Julie says:

    As a further note, if you *are* fiscally responsible, using credit cards occasionally is actually good for your financial health. I’ve recently moved into my first apartment and am working on building my credit rating so that I can one day buy a house. Using my credit card (responsibly!) now will make that much easier later.

  5. Johanna says:

    @Jane: But in the circumstances you describe, you’re still better off having a credit card with a lousy interest rate than no credit card at all. So the “ditch your credit cards because the interest rates are going up” argument still doesn’t make any sense.

  6. Patty says:

    My credit card company just ditched my card for me for ‘inactivity’ and I’m upset. That card had my highest available credit and even though I never used it I liked it as a backup and for its effects on my debt/credit ration and credit score. I really hope noone starts enacting fees for people who pay off total every month!!!

  7. Des says:

    I’m sad to see that this article, like all other pro-credit card articles, fails to address the statistics that say people spend more when using plastic than with cold hard cash. To me that is the #1 reason to use cash over cards. I would like to see someone counter that with anything other than “I’m an exception.”

  8. prodgod says:

    I tend to spend more frivolously if I have cash in my pocket. Where’s the accountability? By using credit cards only, I get a monthly accounting of every purchase. If I went to Starbucks too much, it’s right there on the statement and undeniable. Before every credit card purchase, I mentally tell myself that this expenditure in going on my “permanent record.” Can I justify it later?

  9. lurker carl says:

    With interest rates for lending and saving at all time lows, there is no reason for credit card rates to be at all time highs.

  10. BirdDog says:

    Cash only is my method of choice. If I have to part with the green backs out of my wallet, it better be something good. When I use my debit card, it’s much more tempting to buy things online.

  11. Kim says:

    I totally agree with Suzy and especially, Dave Ramsey. Going cash only, even when you have control over your credit cards, is an excellent way to teach credit companies that poor business practices won’t be tolerated by the public. Excessive interest rates, universal default because a person was late on a single payment (maybe they were in the hospital or something!), cutting limits or cancelling their cards even though they are excellent customers…all of these are poor business practices that I certainly wouldn’t reward with my businss.

  12. Dagny says:

    A well written article presenting common sense. There’s a saying about interest: “Those who understand interest collect it. Those who don’t pay it.” A bit simplistic, though, as borrowing to buy an asset that makes you or your business more productive – that pays back the interest and then some – can be a good idea. Borrowing for consumption is simply insane.

  13. Shevy says:

    I’ve only just recently gotten serious about paying off my credit card although I basically stopped using it just over a year ago. The problem was, I was paying barely more than the interest charge so the balance wasn’t really declining.

    Now that I’m making payments every 2 weeks I see that my credit line has *increased* by $3,000! And my interest rate has dropped at least twice in the past several months. This is *not* the sort of thing that I’m reading about elsewhere but I figure it’s a ploy to encourage me to run my balance back up near the top.

    I’m still making my payments and not charging anything frivolous. The only things I’ve charged in the past year were my annual fuel oil delivery, a handful of $1 parking lot charges because I don’t carry cash and 2 charity donations for cards that were sent to people who were ill. The charges I put on were paid off in addition to my usual payments. Oh, and the fuel oil was *last* December. This year I paid for it directly from my bank account!

    In 2010 I’m going to be paying down a significant chunk of my debt but I’m not about to cut up my credit card. I’m just not using it. However, I don’t use cash because that’s a giant black hole. I put almost everything on debit because then I have a record of everything I spent.

  14. Johanna says:

    @Des: I’ll bite.

    1. Correlation does not equal causation. I use cash when I’m making a very small purchase, and my credit card for pretty much everything else. Therefore, I spend more per purchase when I’m using my credit card than when I’m using cash. But that doesn’t mean that I’m spending more *because* I’m using my card. Rather, I’m using my card because I’m spending more.

    2. As I understand it (and correct me if I’m wrong), the statistics to which you refer address the amount spent per purchase, not the amount spent overall. It’s possible that credit users are making fewer total purchases than cash users, so that they’re spending the same amount (or less) overall. (I can think of no particular reason why this should be true, but the statistics don’t rule it out.)

    3. Again from the “correlation does not equal causation” department, it is my understanding that a lot of poor people go without credit cards by necessity. And poor people spend less than rich people.

    4. “Plastic” includes not just credit cards but also debit cards. Most people who go without credit cards by choice probably have debit cards.

    If you can be more specific about what the statistics actually say, I can be more specific in countering them.

  15. Telephus says:

    Great article. I’ve always considered it similiar to Prohibition – if you’re an alcoholic, by all means stay out of bars and don’t even drive past the liquor store. But since I’m not, don’t lecture me if I want to have a champagne toast on my wedding by telling me it’s the first start down a dark path and I’ll be homeless in the streets. I’m another person who charges a lot of things (not everything I possibly can, but a lot) and pay the bill off in full each month. I get a little bit back in rewards, and get to maintain my excellent credit score.

    I also find (and this is only my opinion) that I spend more with cash. If I use my credit/debit card, I can spend $7 on lunch as a treat. If I use cash, I take out $20, and the other $13 gets eaten up by the vending machine, oh lets just stop at Starbucks for a coffee, etc. I personally spend less when I use plastic.

  16. Paul says:

    I have, over the past year, used a rewards credit card as my primary means of paying for things, then paying it off as soon as the charges post on my credit union’s web site. Essentially I’m using it as a “two-step debit” and getting $75 free. Do I spend more with it? Possibly. But I plan my spending beforehand, either at home or at work, and stick to lists. I think I’ve made out from it.

    The one thing I don’t understand is how non-purchase actions on the credit card happen. If I were to put this rewards card into an ATM and pull out $300 in cash, then put it right back into my checking account, then paid off the card, would they charge me interest? Or deny me the rewards points? What about if I paid my other, non-rewards credit card (which is a debt I am paying down steadily) with the rewards card? Would that be considered a balance transfer?

    I haven’t tried these tricks because I assume, being cautious, that there’s some sort of fine print that could mess up my relationship with the CU. But what’s the straight story on just moving money around on rewards cards?

  17. lurker carl says:

    Using a credit card in an ATM is a cash advance. It is treated differently from a purchase, interest accrues and fees are charged regardless if you pay it back immediately.

  18. Jen says:

    @Paul (#16): Usually there is NO grace period with cash withdrawls, and the interest is MUCH higher than purchases. My guess is YES you would get hit with a very nasty interest charge the second you took that $300 out of the ATM, regardless of what you do with it afterwards.

  19. Ann says:

    I’ve heard the statistics aboutbusing more with plastic, and yes that includes debut cards. I use cadh only–so nit even my debit card unless it is an online or phone purchase. I’ve also heard that using physical cash causes different reactions in your brain than using plastic–including debit cards. It actually registers as pain. The way I use cash only is with an old-fashioned envelope system. We fill them once a month according to our budget, and that’s it. I have “fun money” that is for the little things, like vending machines and Starbucks, etc. And I am spending significantly less on every category within our budget than I did when using my credit and debit cards–and yes, we had a budget then, too! lol

    I understand that you have increased production of content
    on your blog, but I feel that the research is now lacking from some posts. I also understand that you want to differentiate yourself from other financial gurus in the marketplace, but I hope it does not cause you to dig in on a position that may be on faulty footing. Of course, you’ve said numerous times that you aren’t trained in these things, and so can only attest to your own personal experience, but your success in the marketplace is not only dependent upon your ability to tell your story, but also to help people whose stories, backgrounds, and experiences are different from your own. I don’t know. I just know that cash only is a valid position, and for many of us, it is more about philosophy of how we choose to live our lives as it is a “numbers” game. I don’t care so much about squeezing every reward card for what I can. I just choose to be a good steward of exactly what is mine. Nothing more, nothing less.

  20. Kate says:

    I just cancelled a credit card that sent me a notice saying they had jacked up my interest rate to 23%. I had no balance but I do use the card occasionally. I wasted little time going to the phone to cancel the card: after the person very brightly thanked me for being a valued customer since 1985, there wasn’t even an offer to lower the rate. I can live without the card and am thankful that I didn’t have a balance on it. I can’t imagine how it must be for younger people who were given credit cards who should not have been. I think that is why the credit card companies should be hung out to dry–for the number of young people who were actively encouraged to take on debt that they couldn’t afford. That, to me, is unconscionable and I cannot believe that the companies were allowed time to make even more profit before the new regulations went into effect.

  21. Michelle says:

    I’m in the “cash makes me spend more” camp. There’s just no accountability for me when I spend cash. No one knows where the money went, and I don’t have to answer to my husband or anyone else for the purchases. I wonder if this is a generational thing? I’m 26, and I don’t ever remember seeing my mom use cash to pay for things.

  22. Shevy says:

    I don’t know about the idea that using cash causes a different brain response (i.e. registering as pain) vs plastic (credit or debit). My brain certainly doesn’t work that way. For some reason cash appears to be totally discretionary money that I can do anything I like with. Then I blink and it’s gone and I can’t remember everything I spent! It’s not painful when I spend it, only once I’m broke!

    I’ve done this time and again and it always goes somthing like this. “Okay, I had $100 and now I have $5.23. I bought $35 in groceries, the card was $4.99, the top was $7.99, I had Starbucks for $3.60. Oh no, where did the other $43.19 go?”

    Whereas when I use debit I can see exactly where I spent the money. And knowing that I’m going to be looking at it later makes me more careful.

    The other thing is that where there are 2 people spending it’s twice as hard to keep track of where cash went and that it’s very easy then for one partner to hide *where* they’re spending money from the other.

    I really think this is yet another YMMV area.

  23. Doug says:

    When my wife and I needed to fix our finances, one of the debates was getting rid of the credit card. She’d always used it as an emergency fund, and it didn’t feel right to her to get rid of it.

    I said “Fine. I’ll get rid of mine to prove it to you.”

    Turns out, I was right.

    Now, I have remained without a credit card for a good long time. And when we went to get our credit reports checked during the mortgage approval process, my score was higher than hers.

    One of the usual excuses I hear from people who have money trouble is that they can’t get rid of their credit card. The reasons for it vary, but now, just to prove those people wrong, I’ve decided I’ll never use consumer credit again.

    As for not having accountability with cash, we fund our “blow it on whatever you want” budget category, and when it’s gone, it’s gone. There’s plenty of accountability. “Honey, I’m out of money” opens that door of communication, and allows people to have an honest conversation about what’s going on.

    Writing down your budget, and sticking to that written plan, is the piece of the puzzle that people seem to be missing.

  24. Jonathan says:

    I think people who are good money managers do the right things without even thinking about it.

    I do a somewhat labor intensive practice when it comes to credit card charges. I make an entry in my checkbook and Quicken for the amount of the charge. I name them FUMC (Future Master Card) for finding them when I reconcile my credit card statement. When it comes to the 1st pass reconciliation, I find and delete each transaction from my statement. When I am done, there should be enough money to cover my credit card bill. Yes, it might be a bit OCD, but I am never surprised when my credit card bill comes in because I know I have enough money in the account to cover it.

  25. Anna says:

    I agree Trent! I use my credit card for ALL purchases (yes even the $2.50 lunch at McDonalds) I use Mint to keep track of my budget and it tells me exactly what I’ve spent on EVERYTHING with Cash unless I save all my receipts I have no proof. Plus I use my credit card rewards for things like cruises, my boyfriend and I completely paid for a cruise last January with our credit card rewards, cards we pay for in full every month and only use for purchases we would have made already. I feel like I should thank those stupid enough to keep a balance on their cards, spending more than they can afford because they’ve allowed me to rack up some serious rewards.
    Credit cards are a business first and foremost, they lure consumers to use their credit cards based on what rewards they offer, hoping you won’t pay your balance in full and they make money while giving you rewards that don’t equal the interest you are paying.
    I make about $250 a year using a credit card, one that does not make me spend more than a cash only diet would because I never spend more than I have budgeted. I also have an amazing credit score because I have several credit cards that I use responsibly, never going near my limit and always paying in full on time. Lets see a cash-only diet do that for ANYONE!

  26. Anna says:

    Also, credit cards are a great way to protect yourself because the CC company gives everything you purchase a warranty, if you buy something with Cash there is no way to guarentee your item or your purchase if something is stolen, lost or broken.

  27. Doug says:

    Anna, I’ll put my credit score up against anyone’s.

    A debit card offers the same warranty protections you cite. Plus, how often do you use that warranty protection? In the two decades I had a credit card, the exact number of times I needed the credit card extended warranty was: Zero.

    And after 5 years, you’ve “made” about $1250 using your credit card, right? I spent more than that at GenCon this past year. In cash.

    I think I’ll stick with my plan. Please stick with yours. But never tell me that my plan is worse. I’ve got years of experience that says otherwise, and I’ve got the walk as well as the talk when people come asking for financial advice. “But I can’t live without a credit card” is just an excuse.

  28. Kate says:

    Reading the posts, I am definitely getting a feeling of one camp vs. the other. There really is no right or wrong answer–only what works for each person.

  29. b says:

    I recently got my first credit card, and I was terrified. I wanted the rewards points and I wanted the protection of an American Express card, but I was terrified of what would happen if I couldn’t pay the entire balance every month (I know all about the evils of minimum payments). But then I found this tip – to write all purchases in your check register with your debit transactions and the checks you write, so you know that you have the money to pay the bill because you’ve already mentally accounted for it. I just label them AMEX so if I go to balance my checkbook against my bank statement, I know which transactions won’t be there. And having a credit card isn’t so scary anymore.

    I haven’t yet come across an emergency where I needed to charge a large amount at once, but if I did, I do have the emergency fund in a different account I could transfer to cover the charge.

  30. Writers Coin says:

    I’m with Briandadude: rate increases don’t affect me either but annual rates are a problem. Then it starts eating away at your rewards. Say I get around $200/year and a half. Now that reward gets reduced by whatever my annual fee is. As long as there’s a card out there with decent rewards and no annual fee, I’ll be there.

  31. getagrip says:

    Hold on, have we all missed the point? The credit card companies are screwing us simply because they can! Whether you pay the balance off every month or not, you shouldn’t have your rate arbitrarily increased when interest rates are at historic lows! If the majority of utility companies in the county decided to jack up rates 8-10 percent when oil prices were at historic lows, we’d be freaking out, there would be congressional inquiries, it’d be headline news, but this is okay? Can you easily find a major card that hasn’t jacked up rates?

    Also, saying these rate increases don’t affect you is wrong. They are the bear trap waiting for you to misstep due to job loss or medical issues. They are the obstacle those still in debt and trying to get out of it have to overcome. You think if you were struggling with a budget and they jacked your rate up another ten percent that it wouldn’t hurt you? You may personally be okay, but is this kind of monopolized increase good for our communities, during high unemployment, when people are trying to get back on their feet?

    I’ve personally canceled cards because I want them to know I don’t appreciate being financially punished for being fiscally sound. This will affect my FICO scores, potentially my ability to get good insurance rates, the best mortgage rate if I refinance, the best student loan rate for my children, etc. So saying this has no effect because you pay your balance off is missing the bigger picture IMHO.

  32. I understand you, I use the credit cards for convenience only, so the rate doesn’t matter to me.

    John DeFlumeri Jr

  33. Tammy says:

    I work at a bank and it is part of my job to sell credit cards to people. At times, I have a really tough time with it, because to me it feels wrong to sell a credit card to someone that I know might get in trouble with it. The card my bank offers is a very good one, but sometimes I help people that really, really need to be in the cash-only camp. I always try to stress to younger people to only use it for emergencies, to not charge more than you can pay, etc.

    It kind of stinks that I have to push cards on people in order to do well at my job. My performance review and my annual raise depend on me making my sales numbers. I’d much rather help people make good decisions instead of handing them tools to get themselves in trouble.

  34. Ellen says:

    I have been limiting my use of ccs and have been paying down the balance on them – I’ve had both for more than 10 years. Neither card has jacked up my interest rate (yet, anyway!)or lowered my available balance.

    2 cautionary notes, however: I do know several people who have paid off credit cards, quit using them for additional purchases, and the company has cancelled the cards. Even though the person had intended to keep them for occasional or emergency use.

    So, DON’T cancel cards until you have your readily liquid assets (i.e., savings acct or money market) built up in your emergency fund to a generous level.

    I agree with “get a grip” @31 – that at least for Suze O this is a protest against the banks’ blatant flaunting of their power. She has promoted responsible use of credit in the past.

  35. Kathy says:

    I have to side with Kim #11 and getagrip #31. What about the business practices of the banks and the credit card companies? Should we be rewarding those banks who were dumb enough to grant credit to people who should not have had credit granted to them and then turn around and treat their low risk customers like garbage by arbitrarily raising rates so these banks can recoup the losses the took when these subprime people defaulted? Should we condone those banks who refuse to work with people who have gotten into financial trouble due to loss of employment or some other catastrophic event in their lives? People who prior, were responsible with the credit they had? Should we condone these banks for running to Congress for a bailout because of the consequences of their own greed and stupidity? No. We should not condone this behavior. But yet, we still do.

    I can tell you a story about my own experience with a mega bank through which I had a credit card. I did not go hog wild with it, but I had a balance on it because of an emergency car repair. I had been whittling down the balance when my hours were cut at work and I had another financial set back (this happened during a time when we were trying to get back on our feet from my husband being unemployed. The credit card was solely for things like getting gas when it was two days before payday and there wasn’t enough in the account to pay cash. That’s how tight things were. When payday rolled around, I pulled out that amount in cash, but it in an envelope and hung onto it until I got my statement and used it to pay for it.). I worked out a payment plan with the credit card company so I could still pay on it and not default. But they purposely posted the payment on their books the day after the due date so they could charge me a $40 late fee.

    Imagine if you walked into a brick and mortar store in your town and the business owner did this to you? Would you just put up with it or would you refuse to do business with them again? How long do you think they would be in business?

    There is a much bigger picture than interest rates. As long as people tolerate these business practices in the name of “rewards” or convenience, these mega banks will continue to screw everyone over. The only way to send a message to them is to stop using their open ended credit and pay cash. In spite of their arrogance, they still depend on us for their business, and it’s about time they realize this.

  36. Lenore says:

    There is plenty of accountability with cash if you allot yourself only a certain amount and save receipts for anything over $5. I pay my bills by check and use a debit card for groceries, household essentials, gas and the occasional online or emergency purchase. For anything else, I carry $100 cash per week. When it’s gone, it’s gone.

    I like that I can go to the movies, get a hair cut, dine out or buy some little luxuries without breaking out the plastic. This system has worked for me for six years, and I used to be a major credit card junkie. I had over $10,000 in CC debt when I declared bankruptcy, and I’m definitely a shopping addict. Someone like me has no more business buying on credit than an alcoholic has living above a bar.

    As some other respondents have noted, this is not only about personal discipline though. The credit card companies are running rampant, ruining lives and constantly changing their own rules. They have become as untrustworthy as those legal loan sharks that offer cash advances till payday or against a car title. Consumers should not reward bad behavior, and the government should not allow opportunistic hijinks.

  37. George says:

    I don’t understand the problem in using credit cards, as long as you know that they ARE the same as using cash, just slightly deferred.

    I use my credit card for some online purchases that require credit card payments, and then pay the account immediately. I have online access to my credit card account, so I just pay the card off as soon as the balance shows up. As a result, my card is “active” but stays with a zero balance pretty much all the time.

    If my bank started charging me an annual fee for the use of the card, I’d cancel and get a card elsewhere, or negotiate the fee back to zero (everything’s negotiable, especially if you’re a good customer). The advantage, of course, si that I have enough cash on hand to make that an option – you can’t cancel a credit card while you still owe money on it.

  38. Evita says:

    I would never advise anyone to cut up his credit card. Just try to rent a car or book a hotel without one! even on-line purchases are difficult without a credit card!
    Much better to put it in a glass of water and keep the whole set-up in the freezer……. it is there if you need it but not really accessible.

  39. Courtney says:

    “you can’t cancel a credit card while you still owe money on it.”

    Sure you can – any time the credit card provider makes a change to the terms of the agreement (not rate changes, but stuff like privacy policies and things like that; annual fees might apply too), you always have the option of saying “No, I do not accept these new terms” and they will cancel your account and allow you to pay off the balance under the old terms.

    You can also request it yourself, but it’s usually a poor idea because they will likely hit you with an interest rate hike immediately in order to squeeze all the money out of you while they can. If it’s the only way to make yourself stop spending though, it might be worth it in the long run.

  40. Suze isn’t advocating going to cash only. She is advocating a boycott of the credit card companies. If we all go to cash for 30, 60 or 90 days, CC companies will see how important the customers are and stop raising rates on the people who carry balances. That is different than advocating that we go to cash permanently. I agree with your blog post, Trent, and advocate responsible use of cards, paying off the balance every month. Years ago, I spent 10-15% more than I made each year. The overage went on a card. It was a pretty desperate time in my life. I had to come to terms with my spending and why I was doing it. Now, I pay off the balance each and every month, enjoying the rewards (which includes consumer protection) that my card offers.

  41. Anna says:

    If we all stop using credit cards for 90 days, the companies will be hurting for money and raise their rates to pay their bills, not lower their rates… they are a business and will increase their rates to pay their bills.

  42. kathryn says:

    I am a believer in not carrying balances on my credit cards but over the past 5 months, I have had balances and they are not going to paid off before the end of next year. So, two cards (same company) sent me notices of rate increases and I have decided to cancel both of them and pay off the balances.
    When I closed one, the rep tried to tell me that 11.99% was pretty good “for these times!” Not after paying 7.99 it isn’t! And not when the prime rate is close to 0%! If I had thought he’d listen to my thoughts on the subject, I would have told him that I wasn’t interested in paying for his company’s mistakes, the practices in which they extended credit to people who weren’t good risks, or engaged in poor business decisions. That’s the real reason for raising the rates, not anything you or have done to make them think we are bad credit risks.
    Thank you very much, but I’ll do without!

  43. We only use one card with a 2% cash back bonus on all purchases, but we only use it for two purposes. One is our gas purchases which we view as any other bill which is paid monthly such as a utility bill. The second use is for planned, large-ticket items which we already have the money for but will get the additional 2% cash back by using the card to make the purchase.

    This has worked very well to our advantage.

  44. Sharon L says:

    Getagrip, don’t worry about how your credit rating will affect YOUR ability to take out student loans for YOUR KID. It is insane for a parent to take out a loan for a college student. You can easily end up in the fix my brother-in-law is in, where his son’s wife is choosing to not pay back her husband’s loans taken out by her father-in-law. They are barely scraping by with his wife’s student loans and his son’s.

    The son is earning more than my brother in law, incidentally. Any child can end up in a situation where they either cannot or will not pay back a parent.

  45. AnnJo says:

    What surprises me about the comments are those that express rage at credit card companies for doing what makes perfect economic sense: raising rates to compensate for the declining quality of account holders. It stands to reason that with unemployment more than double what it was a couple of years ago and consumer spending down (therefore lower revenues from merchant fees), the credit card companies are facing higher risk and would demand higher fees to make it worth their while.

    People who are upset that their credit card company won’t “work with them” when they find themselves unable to pay should go look in the mirror for the source of their problems. They would have complained just as loudly if the credit card company had declined them, or cut their credit limit, or raised rates or fees to discourage use.

    When you borrow money and promise to repay it under specified conditions, what is there to “work with”? They did their part – they advanced the money. Repaying it under the specified conditions is your part. If you want someone to “work with you” on the repayment of borrowed money, borrow from a friend or family member who can be expected to care about your situation, not from a collection of strangers who have legal duties to their stockholders.

  46. KCDesi says:

    Hello #9 Lurker Carl
    My sentiments exactly!! If Credit card companies can jack up interest rates to 18 and 20% at a time when the federal rates are near zero how much more they can raise when the interest rates do raise in the future?

    I did call my credit card company and expressed my displeasure on this.

    I do pay the balance in full every month.


  47. michael bash says:

    I read somewhere that cutting up your credit card may be dramatic but it doesn’t close your account and you may still be billed for various fees. You have to contact the company and do it formally. Then it’s over.

  48. Bonnie says:

    @#32 John DeFlumeri, Jr- What’s up with all the one-sentence non-comments on all the popular PF blogs? I understand that you’re trying to drive traffic to your blog, but I’ve personally never clicked on your link because your comments never have any substance. If you want to drive traffic to your blog, you need to make more substantive comments on TSD, GRS, Bargaineering, etc., i.e. comments that give us an idea of what you’re thinking on these topics. Okay, I’ve said my piece. I’ve been holding it in for awhile because I thought you’d figure this out on your own. You have the right idea with the comments, though. You just need to expand. As it is, I know way more about Johanna than I do about you and she doesn’t even have a blog.

  49. Kenny says:

    I am going to use CAPS for some key messages…..

    Credit cards are losing fashion/fad and Debit cards are coming into existence. Why? Think about it for a moment for the ‘bottom line reasonS’.



    3. Credit cards were NOT created to carry a balance, unless it is an unforseen circumstance, but just like any feature-function created, there are people who use to for the WRONG purpose. Its just like the Atom Bomb, Guns, Prescription Meds, High-priced-name-brand-clothing etc.

    Here is what I do:
    1. I keep 1-2 cards constant for years, and do not change them.
    2. I get new cards every 2-3 months that have significant points/rewards for getting the card. I use the benefits/points/rewards and then close the card.
    3. I use the 0%APR to get the maximum cash out of a card, open a CD and pocket the difference. Use the Bill Payment system to do a Future Payoff so that accumulated interest does not get charged to me before the 0% promo ends.
    4. I also carry ZERO balance on all cards – Payoff at end of billing cycle to prove my #1 Point in CAPS.
    5. I NEVER use Debit cards unless I have to use them for certain places like Woodmans or Aldi or special stores where I go sometimes.

    That’s all she wrote folks!!!!!

    Smart Money Management, means USING the System to BUILD WEALTH in the Long Term. If the system USES YOU, you are the hunted, and not the hunter! And, that is the problem we have in the USA today. This does not happen in Asia where credits cards are available now, but people are just generally too smart to carry balances at 21%+ rates when the CDs pay 2% to 4%!!!!!! What a RIPOFF.


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