Cash vs. Credit Cards

Andrea R Huelsenbeck

Jul 4

Back in the 1970s, when Greg and I were newlyweds, credit cards were advertised as a great strategy for buying things when you didn't have money. The pitch was, "Buy now, pay later!" I can't remember what the average interest rate on credits cards was back then, but the internet says in was 17.3% in 1980. It's gone up and down since then. The lowest rate I could find in my research was 11.82% in August of 2014. This year, the average rate for new credit cards is 22.39%, and for existing accounts it averages 20.09%. Although I have a very high credit rating, I pay 19.74% to 19.99% on my three Chase credit cards. (Except I make darn sure I pay my credit card bills in full two days before the due date so I never have to pay any interest.)

But back in the day, we really didn't have the income to pay much more than the minimum payment. We bought mostly things we needed, and used the cards when our cash ran out. Needless to say, after a few years, we owed a lot of money.

To get out of debt, we cut up our credit cards and closed our accounts. Then we had to learn the hard way not to buy anything we couldn't pay for. It took decades to pay it all off.

To this day, Greg does not have a credit card.

But I do. I use them to buy almost everything, because it's faster than counting out cash or writing a check, and I like to spend my "cash back" points on Amazon. But I keep track of everything I charge in a ledger, so I don't get overextended.

My advice for young people just starting out is to pay cash for almost everything. Get a gas credit card and use it only for gas (no Big Gulps). Pay it off in full every month. That will help you establish a good credit rating. Then, after a year, apply for a credit card to save for emergencies. (Just to be clear, needing a new TV is not an emergency. Paying a hospital bill is, although you may be able to negotiate better terms with the hospital, like a payment plan with no interest. Getting your air conditioner repaired in Phoenix in July is a true emergency.) Once a year, buy one item you know you can pay off in full, to keep your account active. I use my emergency credit card to pay two donations to charitable organizations totaling $35 every month, keeping the account active, and knowing that it leaves me with plenty of available credit if we have an emergency.

Now it's your turn. How do you feel about buying with credit? Can you stick to a budget, or do you overspend with that little plastic rectangle in your wallet? Or do you skip cards altogether and pay everything with cash or a check? What is your best spending advice? Sound off in the comments below.

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