WHY CASH IS BETTER THAN CREDIT

DOLLARS AND SENSE

by Joe Plemon 

As credit card companies infuriate customers with their fine print schemes, and as studies prove that consumers save money using cash, shoppers are discovering that life without plastic works quite well.

Credit card companies have quietly shrunk the grace period – the number of days before interest kicks in on what you buy-from 25 days to 20 days, and as small as 14 days in some cases.  Because a shrinking grace period causes more people to be late on their payments, it is no coincidence that bankers have jacked the late fees from an average of $13 in 1995 to $28 in 2007.  Furthermore, a single late payment will often bump the interest rate, sometimes to as high as 32%.

Meanwhile, studies are showing that plastic costs more even if you pay your bill in full each month.  The average purchase for those who use credit at McDonald’s is $7 compared to $4.50 for those who pay with cash.  A Dunn and Bradstreet survey indicates that the average shopper spends 12 to 18 percent more when swiping a credit or debit card.  Still another survey showed that supermarket shoppers who charge their purchases spend 30 percent more than those who use cash. 

Why the disparity?  Because there is more pain in handing over your hard earned cash than in swiping a card.  With cash your money is instantly gone.  With plastic, there is a psychological disconnect between the transaction and the payment a month later.

Smart shoppers are not only saving money by using cash, but also avoiding late fees, penalty interest rates and creeping debt balances.  The average family saves $250 a month by simply paying with cash instead of credit. 

Cigarettes were once considered sophisticated and sexy but we quit using them when we learned that they are smelly and unhealthy.  As we discover the truth about credit cards, one wonders how long before they suffer the same demise.