Why You Should Never Live On Cash

From Now On, You’ll Learn To Live On Cash

If you’ve ever watched the show, Till Debt Do Us Part, then you’ll know that the host, Gail Vaz-Oxlade, always tell the debt ridden couple on the show to learn to live on cash, no more credit cards.

At first this seems like fine financial advice and tons of planners and well meaning friends or parents will tell you the same thing – credit cards are bad, learn to live on cash. While this maybe sound advice for people on a show like Till Debt Do Us Part or Maxed Out, for anyone with even a hint of financial discipline, living on cash is the worst piece of financial advice ever. Unless you’re drug dealer or with the criminal underworld, you should never pay for stuff in cash.

Paying With Cash Cost You Money

Whenever possible, I will charge everything I buy on a credit card. The main reason for this is because it makes me money. If you’re the kind of person who never runs a credit card balance and always pay off the full amount owed every month, then you should never use cash to buy anything. Instead, use a rewards credit card that will pay you to use it. My TD Visa offers cash back on anything I charge. However, there are reward cards that offer travel points, discount on cars, gifts, etc.

You’re going to buy that grocery anyway. Instead of paying cash at the Save On Food and just getting the grocery, put it on your reward credit card and get some cash back or earn some points towards that trip to Thailand.

Cash Does Not Leave a Paper Trail

The reason drug dealers like cash so much is because it doesn’t leave a paper trail and therefore can’t be tracked. This advantage for the dealer turns into a disadvantage for you. Unless you write down everything single item you buy with cash, there’s no way for you to track how the money is being spent.

This is one of the huge contradictions I find with Till Debt Do Us Part. Gail will have the couple write down everything they buy in a “budget binder.” If you have enough discipline to write down everything you buy, then surely you have enough discipline to use a credit card. What’s the difference between writing down what you charged with a Visa vs. writing down what you buy with cash?

The key to Gail’s financial rescue plan is the budget binder and not the living on cash. By making the couple write down everything, they realize just how much they’re spending on stuff. The budget binder can work just as well with a credit card as it does with cash.

Cash Offers No Protection

Buying things with cash leaves you with almost no recourse should something go wrong with the thing you bought. If the airline that you’ve just purchased a ticket from goes under, you’re not getting your money back if you paid cash for the ticket. If you’ve charged the ticket to a credit card, you’re protected.

If you get robbed or broken into, your cash is gone. However, the credit cards are protected so your maximum liability it limited to no more than $50 in most cases. Carrying a lot of cash with you is not a smart idea.

Cash Is Not King

Try renting a car without a credit card. Most, if not all, car rental companies will require a credit card to rent a car. The same goes for movie and DVD rentals. If you planned to cut up your credit cards and live on cash, you better leave one uncut because there are tons of places where cash is not king.

From Now On, You’ll Learn To Live On Cards

If you’re a financially responsible person, there’s really no reason to live on cash. Given all the advantages listed above, the smart move is to live on credit and pay the balance off every month. According to Visa and MasterCard, only half of their card holders pay their cards off every month. The other half runs a balance and become the cash cow for card companies.

The key to not being a cash cow for Visa and MasterCard is to not charge more than you make. Checking your balance daily or using a budget binder like Till Debt Do Us Part recommends can help you stay on track. In my case, I have it a little easier. My credit limit is only $25,000 and since I make more than that each month, there’s really no way for me to charge more than I make. :mrgreen:

124 thoughts on “Why You Should Never Live On Cash”

  1. Li Weng says:

    Nice post. I’m use credit cards most of the time, I only use cash for the smaller items.

    1. Li Weng says:

      oops. should be “I use Credit Cards” not “I’m use”…

      1. yeh, lots of mistakes by chow these days. 😀

        Yeh, i prefer CC for all the deals.

        1. Cool, the word credit card links back to this post

          1. 100% right JC, Live on cards, pay off the balance each month to avoid interest

          2. I agree. However why not use debt cars, you pay with your own money.

          3. if you pay with cash or us a cc and pay every month your still using the concept of “cash is king” b/c you’re not financing anything

          4. Travis Lusk says:

            Because if you are using a debit card, you’re probably not earning any of the rewards that a credit card offers.

          5. Its linked up via a wordpress plugin 😉

    2. Eric "Shuck" says:

      You HAVE TO be disciplined to use credit cards for everything because credit cards have higher limits than you plan on spending. I work in the finance industry lending money to the “high risk” people, and what most of these people do not realize is, you just can’t live with things you cannot afford…live within your means!
      I get 3% back on all purchases with the ONE credit card I have (you don’t want 30 different bills coming every month).
      My uncle paid for most of his new truck with the GM Card Points he earned. I currently have about $500 in cash back on my card…Very good idea to pay for all you can with a credit card. Go to CreditCards.com to see the various cards and rewards you can choose from.
      Also, If you have good or decent credit, you can usually get a very low rate (into rates are zero of course) like 6-9 percent!

      1. Yeah, I’ve known people that got multiple credit cards & ended up in debt because they went crazy with them.

        1. Thats why, you need to ensure that when you use the credit card – you realise that in essence its “cash” and you have to pay it back. – This is what people fail to realise, and thus end up in debt.

    3. Ben Pei says:

      Especially when it come to working online.. How not to live without a card?

      1. You could also mention PayPal and Google Checkout – when referring to working online.

    4. I use cards and pay off every month…no interest cost to carry over

  2. I never carry cash, i always use my banks debit card. It gives me cash back everytime I use it. By the end of the month, I usually get a pretty large sum of money deposited into my checking account.

    1. Richard M says:

      I’ve never seen a bank that offers cash back for using debit cards? Are you sure you aren’t thinking of the programs many banks have called keep the change?

      For businesses, or in this case for a Self Employed individual using Credit Cards is almost a necessity. It really makes tax life so much easier, especially for smaller businesses that can’t afford accountants, or opt to do their own accounting.

      For individuals however I have to agree that living off your CC is the way to go. Now yes there is the exception as you said if you’re the kind of person who never runs a credit card balance and always pay off the full amount owed every month, you’ll be fine. But most people don’t do that,and most carry balances that end up costing them more in the long run. The second exception would be people that can’t get lower rates. Some of us get incredible rates, other are hit with higher rates that would be a killer.

      1. Stefanie says:

        There are definitely banks that give cash back for using your debit card, including the bank I use. PayPal debit cards also give cash back. It’s not always as high as you get with a credit card, though, and it’s a little tougher to dispute false debit card charges than most credit cards. Still, considering that I do buy some things with my debit cards from time to time, I appreciate the extra cash back.

        1. but I have a question. If you were to take the time you drive and the time it takes to purchase an item how much is that cash back worth. the CC or debit card company has to make money so the % of what you get back can’t be that much. The money you get is from the interest of others. Not saying this is bad but I am saying that the cash back is really pennies on the dollar …. if that. So yes it is good to make money but the money you make isn’t something that you would trade for your hourly work rate today.

      2. He’s definitely right. I have a relative that has a debit card & the same thing happens to her.

    2. Ben Pei says:

      Nah.. the debit cards in my country don’t have this privilege..

    3. The debit cards in the UK don’t offer this, but some credit card companies offer it.

  3. Duane Storey says:

    Good advice. I actually go into my online banking and typically pay my credit card immediately after I make any moderate to large purchase, that way my balance goes down in my bank account and I can track what I have left each month without waiting until my credit card invoice comes.

  4. Vik Dulat says:

    Great post but the best thing to do is do a little bit of both. Use a little bit of cash and a little bit of credit cards.

  5. come on chow. No one says that CC are evil. And don’t forget about Debit Cards. Now, Now…I don’t think anyone is going to try to pay cash for an airline ticket….can you even do that? People use Debit Cards. Now I’ve worked in the CC industry as one of those who would get people to max out their cards.

    Also, cash doesn’t leave a paper trail but receipts do. It is easier to have the CC keep your receipts too but if you’re responsible about it then paying with cash and keeping a paper trail works.

    You’re last point is the best one Chow. Be responsible. You have a card in which the limit is less than what you make a month and you pay it off every month. In that case you benefit by making a little cash from doing what you normally do.
    QUESTION: do most people do this. Well, no. That’s the issue.

    For those who cannot then cash is king because it keeps them from over spending.


    1. Paying via a credit card is essentially paying with cash – therefore its king no matter, what 😉

  6. Azmi Jahan says:

    CC are not bad it’s just that they are a nuisance when one doesn’t keep track of them. I personally use my Check Card because it’s still a card and it could be traced and I don’t have to pay any interest on it. On top of that I get points toward my purchases. You should checkout Wachovia Visa Rewards.

    1. Credit Cards can be tracked via your monthly statements.
      Like any other banking statements.

  7. JP Holecka says:

    I agree!

    I run a small corporation with my wife and everything we buy goes on an aeroplan credit card. Not only do we get the points [usually 4 round trip tix in North America at the minimum] but our accountant also loves it. He loves it because at the end of the year I hand in all the invoices, corporate bank statements and all the credit card bills, that’s it. The bills are all listed out in the proper charter of a accounts from the get go. My year end including bookkeeping takes less that 4 hours in total! I save money on a bookkeeper and am always know where we are at with our monthly books.

    Petty cash sucks and is hard to keep track of.

    Live on credit!

    Twitter @jaypiddy

  8. Ray Ebersole says:

    Debit Card, debit card, debit card…….No interest and you can only spend within your limits.

    1. John Chow says:

      No rewards either. Well, the debit cards in Canada doesn’t offer any rewards.

      1. blackysky says:

        debit card in canada are not free to use… this is why i like credit card !!!

      2. Mike says:

        Regardless if you pay off the balance each month your card company will still charge interest on the balance. Why go for 1% cash back rewards when your paying 6-26% in interest?

        If you invest your CASH, you can earn much bigger rewards then burning the plastic at the store.

    2. Stefanie says:

      The only downside to debit cards (assuming that yours does offer rewards) is that they’re a little tougher to deal with in cases of fraudulent charges or merchant disputes. When you dispute charges on a credit card, it’s just your line of credit that’s tied up. When you dispute them on your debit card, you have to wait on the bank’s decision to actually have that money to spend. If it’s a large transaction and you’re not loaded, that can be a big difference.

      Actually, one more downside to debit cards. If you have auto-payments, subscriptions, or other charges that are applied either mistakenly or fraudulently and you end up going negative because of it, you’re going to find it difficult to impossible to get the charges reversed. Given that some banks will charge $35/per returned transaction and a $25+ daily overdraft charge, that can add up really, really quickly – especially if you’ve made a number of small charges (lunch here, a drink there, etc.) that don’t post until after the account goes negative.

      A few of years ago when I was a broke student, I had a $600 insurance payment hit an account after I had already switched providers and canceled the policy. Since I had made 4-5 small debit transactions the day before, the $600 hit and the others cleared a day later before I ever realized what had happened. The end result was nearly $200 in overdraft charges that the bank refused to reverse after weeks of arguing and a letter from the insurance company noting the error on their part (which they also refused to pay for).

      1. Travis Lusk says:

        They’re also not quite as safe. If your card gets stolen and account drained, there will be a period of time where you have NO money while the bank solves the issue. Your money could be in limbo for who knows how long.

        Or if you need to dispute a charge, that money (cash) gets tied up for a period of time as well.

        The same scenarios on a credit card are better because your actually money is not being touched.

    3. You won’t get getting any rewards by using a Debit Card.

      1. You should shop around. In America many banks and credit unions offer rewards checking that can be linked to a debit card. If your debit card or checking account doesn’t offer rewards, you’re an idiot AND you’re losing money.

  9. Shawn Knight says:

    I completely disagree with you on this one. Credit is not the way to be successful. How many people do you know that have got rich using credit cards to their advantage vs. how many people do you know that are up to their eyes in credit card debt?

    The problem with using a credit card is that most people don’t realize how finances work and aren’t disciplined enough to use credit. They spend spend spend then can’t pay.

    A study by Dunn and Bradstreet showed people spend 12 to 18% more with credit instead of cash. Spending cash hurts and will help you save money.

    Yes, cash leaves a paper trail, its called a receipt. Nearly every place gives those out – easy to keep on file.

    I do agree that there are better times to use a debit card, linked to your bank account, than cash. You can do everything with a debit card that you can do with a credit card, and if you have the clerk run your debit card as credit, you still get the exact same protections as you would from your credit card.

    Carrying a ton of cash with you is not smart, I agree, but it doesn’t make you more susceptible to getting robbed as the next guy. Crooks don’t have X-ray glasses – they don’t know how much cash is in your wallet / purse. Unless you flash your cash like a fool, you are just a safe as the guy with a wallet full of credit cards.

    Also, using cash can get you deals at stores. Pull out some hundreds at Best Buy or Circuit City in front of a manager and you are very likely to get a nice deal. I’ve seen it happen several times. You won’t get that with a credit card.

    Another note. What happens when your credit card payment gets lost in the mail or the processing center screws up? Then you are hit with penalties and late fees and good luck trying to get that ordeal worked out with them!

    What happens when you go somewhere that only accepts cash? Like a sporting event, etc. Guess you aren’t eating or drinking anything, as they don’t take plastic.

    1. John Chow says:

      According to Visa and MC, half of their customers paid off the balance in full each and every month. That means half, not most, need some lessons in proper financial planning. Yes, I know quite a few people who are up to their eyeballs in CC debt but guess what? That’s not the fault of the credit card. The fault lies with the person using the card. Anyone who blames their financial mess because the bank gave them a credit card is just irresponsible. Used smartly, a credit card will beat using cash every time.

      Using cash doesn’t give you any better deals at a store. Whether you flash cash or a gold card, as long as you show you’re ready to buy NOW, you can get a deal. As a matter of fact, most big retailers like Best Buy would rather you pay by debit or credit card. Handling cash cost money. Those Brinks Armour car that pick up the cash deposits don’t come cheap. Debit and Credit transaction goes into Best Buy’s bank account instantly. 🙂

      1. Michael Kwan says:

        I agree with John and not Shawn on this one. If you’re going to spend the money anyway, you might as well get some added benefit from it in the form of reward points, cashback, or whatever. Further still, by using a credit card, you are effectively getting an interest free loan from the bank until your statement comes. During that time, your actual cash can still be accruing interest or otherwise “working for you” rather than going straight to the merchant.

        The issue is not with Visa or Mastercard. The issue is with the apparently lack of discipline by so many Visa or MC users. If you pay off your balance in its entirety every month and you track your expenses maturely, you really have nothing to lose by using a credit card instead of cash…. unless you go to eat pho in Richmond. They only take cash. 🙂

      2. Michael Kwan says:

        I should note that Shawn is right about getting deals when paying with cash, but not at a Best Buy. They don’t care how you pay, so long as you want to buy RIGHT NOW. You’re more likely to get a cash deal when dealing with smaller businesses.

      3. Mom & Pop stores and most small businesses would rather you used cash. There are huge fees racked up by a merchant who accepts cards. If you think you get screwed by the Paypal business fees, try having a real merchant account with a high volume of transactions.

  10. Great tips. I use a little bit of cash and more of Credit Card.

  11. Good advice. The only problem is there is a huge number of people out there who do not make enough money to support their lifestyle. They make up the difference with credit cards and it gets out of control pretty quickly.

    But, people can be irresponsible with their cash just as bad as they can with credit cards. If you spend all your cash, you still can’t pay off your bills and you’re equally as screwed as if you racked up huge debt with credit cards.

    You are right about the losing money by using cash. Credit card processors charge pretty big fees to retailers and they in turn factor that into prices. If you use some kind of credit card reward system you can get that extra money back.

  12. Tyler Cruz says:

    God, I hate that show… and Gail Vaz-Oxlade.

    Yet I usually tend to watch it when I happen across it because I take schadenfreude in watching the people realize how much in debt they are at the beginning of the show.

    The show itself is rediculous though. There’s only so much you can do to make a 30-minute show, but the way the “system” is taught is ludicrous, and success based on a 1-month time lapse.

    Probably the worst part (apart from Gail herself) is the shameless $5,000 bribe waved into the debtors’ face. First off, they make it sound like $5,000 is 5 million dollars (but it’s a Canadian show so….). Secondly, it’s BRIBE money, and gets delivered even if the constestants fail miserably. How is teaching money management the bribery of $5,000 if they follow your instructions?

    Gail may be a good financial planner in real life, but on the show she looks like a moron. And she’s a therapist too? Wow. She gives maritial advice like shes recommending a movie, and is extremely judgemental in general.

    Also, one of her main money maker “tricks” is to force the contestants into getting a second/side job to bring in more money. Oh sure, that’s money management all right….

    1. I didn’t know about the bribe thing. What the hell?

      1. Tyler Cruz says:

        It’s in every show near the beginning before she cuts up or hides all their credit cards. She says something along the lines of “commit to this and follow my rules and I’ll give you $5,000 at the end in 4 weeks”. People can cheat and be lazy and waste money and she’ll still give $5,000.

        The only time I saw that she didn’t give $5,000, she gave $4,000 as a “penalty” instead…

        1. That’s not right. I wonder how long that will continue before people are vocal about it.

    2. Whats the point in that. I’ve not seen this show as I’m from the UK but, theres one similiar to this in England and they don’t give bribes to people – they have two people and force them to live on cold turkey for a week – then they, give them a realistic monthly budget and then review it with them after 6 months or so.

  13. How much cashback do you get, John?

  14. David King says:

    I’m gonna have to agree and disagree with this post.

    Their are positives and negatives to both.

    when you use cash.

    A. You spend less (you see the money leaving! Ohh NO!… It’s been proven!)
    B. You spend less!

    when you use a credit card.

    A. you get rewards
    B. Safer in the terms of refunds and getting it stolen.

    So I’d say cash is better if you want to save more money… especially now at the pump in michigan you can get gas at a cheaper price if you pay in cash.

    I’d say credit cards if you want to get rewards.

    If you pay them off their ok… It just depends on what you prefer and what’s best for you i’d say!

    David King,

    1. Michael Kwan says:

      Spending less when paying with cash is purely psychological and a matter of discipline. If you treat your credit card as if it were cash, then your behavior should be much the same.

      1. I completely agree. This is where people FAIL with Credit Cards – they don’t see it as cash, they see it as something that just gives money “for free” at the time and then realise afterwards when the bills are stacking up that it is actually cash – just you’re not carrying it around with you all the time.

  15. John,

    Well, I think whether to use CC or Cash, it depends on a lot of factors.

    In NZ, you can buy air-ticket with CC but incur a 2~3% transaction fee (some people call it convenience fee), so paying by cheque or cash is a better option.

    Having cash in hand give you a sense of control, you know exactly how much you can spend. Of course you can do the same for CC but you have to check CC balance every now and then…you talk about opportunity cost remember? 🙂

    For every salary earner like me, using cash will allow me to control my budget better and it is more hassle free!

    Personally, I only use CC for auto-debit transactions such as monthly insurance premium payments, big purchases (without txn fee) and online purchases.


    1. Mad Ape says:

      I have yet to experience a service charge for using my credit card versus paying cash. I purchased an airplane ticket for my son to come home for Christmas and there was no extra cost.

      If any company wants to do that then I will take my business elsewhere.

      Further retailers may be jeopardizing their relationship with the credit card companies by putting them at a disadvantage.

      The Mad Ape

  16. You are right. As long as the person can manage their credit cards and do not get overr run with debt this can be helpful advice. But I always feel its better to tred on both sides of the fence to make sure your grass is always green.

  17. I use my credit card as well. However, if something I’m buying is only between $1-$4, then I’ll use cash because that’s nothing.

    And I always pay more than I owe on my credit card. It’s no problem for me.

    1. Smaller payments are pointless to pay on your card – especially if some store have a small fee (due to paying the processing costs) for this.

      BUT paying extra is a smart move, which people should do more of to ensure that they don’t get into debt and also so they’re cards are loaded if they want to pay for expensive items.

  18. Last time I went to Target, I noticed that the items on the receipt were grouped into groceries, medicine, electronics, etc. That’s a great feature for keeping a paper trail. Even a credit card statement doesn’t break down the items within a purchase based on product type.

  19. Awesome advice!
    Don’t worry I’ll disagree plenty when the time is right but I think this post is spot on. Credit Card history (a positive one of course) is one of the strongest financial tools you’ll ever have. There is no history with cash.


  20. game-girl says:

    I prefer to use both a credit card and cash. It definitely depends on the sum I’m going to spend.

  21. I agree with you for the most part – I will give myself a certain amount of spending money, or fun money for each week which I take in cash – once I run out, no more fun for me, but I still put everything else that I NEED on credit cards

    This way I’m budgeting what I have fun with, and I don’t blow my money on stuff I don’t need

  22. J.D. Meier says:

    Good point on the accountability and audit trail of the cards.

    $25K a month? … You can almost live off that.

    Do you have any posts that outline your breakdown of techniques and relative earnings?

    1. I think is someone CANT live off 25k a month – they’ve got to re-evaluate what theyre spending money on lol

  23. jtGraphic says:

    Great post! I completely agree. I love my AMEX rewards.

  24. wesley says:

    I don’t think they offer rewards here in Belgium, but the other reasons you list are all very true.

    1. All credit card companies throughout the world offer rewards – you just need to look for them as in some countries they don’t really advertise the fact that they have them as there is no incentive for the companies – in the sense, that competition is weak etc.

  25. John I’m really glad that you’re not a financial adviser! There are a TON of hidden and not so hidden costs associated with using credit cards. What about the 2%-5% processing fee for using a credit card? What about the yearly fee associated with most decent (gold/platinum) cards? What about that some card companies withhold the right to take your card from you IF you pay of your balance each month? How about that most rewards schemes have been proven to encourage spending that people then can’t afford, just to get those extra points/that 1% cash back?

    Only an idiot would ever suggest running your life from a credit card. Let me guess, it’s also the perfect time to buy stock (as long as the company you buy in doesn’t go bust of course?)

    1. John Chow says:

      Not sure where you’re from, but CC here don’t charge a transaction fee. The merchant pays a fee but that’s built into the cost of the good whether you pay cash or credit. As for the yearly fees on some cards, just get one without any fees. There are tons of them.

      If someone buys a $1,000 item just because it can give you a 1% to 5% reward, then they’re the idiot. The key is discipline. If you don’t have that, then it doesn’t matter if you use cash or credit. You’re going to be a financial mess.

      Actually, now is a great time to buy stocks. And real estate too. It’s buy low, sell high. Not buy high, sell low.

      1. UK John, CC charges are extra – up to 5% for some holidays/vacations.

        What about all the people who have jumped on the stock bandwagon (cos it can’t go any lower right?) and found that either:-

        1. The company they have invested in has gone bust altogether (happens quite a lot at the moment)
        2. The government intervenes, buys out large parts of the company for pref shares and leaves the other share holders with no chance of ever getting a decent return

        The world has seen an inflated glocal econopmy over the last 5-6 years based on bullshitters selling “products” where in fact there was nothing but thin air. IMHO it will never return to that level again. By the time your stock is worth anything again you could have been a long time dead! We haven’t even started with this whole recession thing yet. Of course you can get lucky, but then again you can get lucky sticking money on a 20-1 horse, it’s still gambling and for there to be winners there has to be losers. The majority lose.

        I hear what you are saying about discipline, but most people living on credit cards don’t have it. Well at least 50% anyway.

    2. The processing fee is given to the company and not the person. Its only passed on, if the company doesn’t want to pay the processing fee and wants to screw over their customers.

    3. Mad Ape says:

      We do pay an annual fee for our gold cards but we more than make up for it with the rewards. It is good money chasing after better money. In effect we get two tickets to a sunny climate for under $170 per year. Cheap by my books.

      The Mad Ape

  26. Jack Mehoff says:

    Having some cash in hand is always good for emergencies or using it in a mom-and-pop store that does not take credit. However, I use credit for most of my purchases. Because like John mentioned in his post, if you were to lose your wallet you could cancel your card and not lose any money, but if you lose your wallet and had some hundreds in there, it may well be as good as gone.

    Using credit, you can also build a good and strong credit score and make bigger purchases more easily. Like: a vehicle, a house, and maybe even a yacht.

    People that say credit cards are bad, I do believe, those people are not responsible people. It’s the same as people owning guns, homes, cars, etc… If someone has a gun and hurts or kills someone else, they are responsible and should be held accountable for their actions, not the gun. If someone bought a home that they couldn’t afford but they knew it, they should be held accountable for their dumb mistakes. If someone causes an accident using their vehicle, they should be held liable for the accident, not the vehicle.

    So don’t blame the credit card companies for your purchases or your mistakes. No one is holding a gun to your head and making you sign any contracts. And no one is making you buying stuff you do not need either. If you are going to purchase anything with your credit card, pay it back within 25 days of the original purchase date. So you would not get screwed by the interest rate.

    The stupid and ignorant will always be poor, and the smart and clever will always be well-off.


    1. Jack Mehoff says:

      One more thing, I am glad to know that there are people out here that are stupid and ignorant. Because if there were smart and clever people that are responsible, there would be no profit for the credit card companies.


  27. In our country buying credit card is very difficult

  28. Mad Ape says:

    We use a gold card to purchase Aeroplan air miles. For example, we are going to the sunny southern Caribbean in late February thanks to all of our purchases.

    Also you have to be disciplined. Do not get suckered into credit card debt because you will become a debt slave.

    Debt Slave Economic Theory suggests that a slimy little trick that some card companies pull is that you must pay the debt off within 21 days. Problem is that the statement arrives later than that.

    So we do not even pay attention to the paper statement. We constantly monitor it online and make sure that everything is paid for as soon as we buy it.

    The simple rule of thumb is do not buy it if you do not have the money before the purchase.

    Also another thing I would suggest is that if you have a large amount of paper money on deposit that you had better divest yourself of it. Invest it into either gold or silver. The current economic reality has been understated. We are at the beginning of a world-wide depression and paper money is going to be rendered worthless within 2 to 5 years.

    Cash is trash.

    The Mad Ape

  29. My mom at one point was paranoid that using her CC for all purchases was acting the same way a theif would…and hence would make it difficult for the bank to put a stopper on her card if she had it stolen (based on her spending habits). I’m more in favor of Chow’s post, however.

    1. If its stolen you can ring the bank immediatley and inform them. Also they tend to notice your spending habits and realise areas, where you are unlikely to spend in and if you spending alot more then usual they usually put a block on the card and ask you to phone them for verification.

  30. Pete says:

    Totally agree with this post. Just like “guns don’t kill people, people kill people” saying, the evil is not with the cards, but rather those who are not disciplined enough to make sure they only live within their means.

    By the way, small typo in the heading of the last section: “LEARN To Live On Cards”, not “lean” (missing a “R”).

    1. The word “lean” could work here…..if you’re not using CC and just living on cash but what to change you may not be able to just jump right in b/c of habit. Therefore, it may be best to only “lean” to live on CC before you jump in.

  31. sdogood says:

    John, I enjoy your blog. However, I think this little piece advice is very bad. But, hey it will probably drive a lot of posts, so bravo!

    Most consumers lack the discipline to pay off their cards month in and month out. Truth is no monthly rebate could ever save you as much as paying cash. I pay cash for everything* except for gasoline which I use a debit card. Here’s how cash saves you money versus credit cards.

    1. Spend Less: Credit cards are so easy to use that you don’t often realize how much you’ve spent until the end of the month. This may work for people that live far below their means but generally it’s bad policy. When you pay cash, you “feel” it, peel $100 out of your wallet to buy something knowing that you have a finite supply is real. Contrast that to the surreal shopping orgy that most of us participate in every Christmas.

    2. Buy Used: When your primary purchase method is credit cards it rarely occurs to you to purchase a used item that would serve the intended purchase as well as a new item. Best for furniture and tools.

    3. Let’s Make a Deal: When making a large purchase if you flash cash retailers will know that you are a qualified buyer who can make their purchase anywhere they choose (deal or I will walk). They will deal, if they don’t go to the next retailer. I have relatives that buy their TVs and have their tires changed at Sears because they have a Sears card. Guess, what they used to buy their electronics at Circuit City until they maxed out their credit line there. Credit cards are bad, store charge accounts are worse.

    4. Compound interest and fees: Besides my parents I don’t know anyone who pay off their credit cards every month. Miss a payment once a year and the late fee will pretty much eat up your rebate. Over the limit fees are worse. And if you are paying the minimum every month you are paying interest on top of interest. Also, most frequent flyer bonus/automotive bonus cards usually have a yearly fee.

    5. Peace of mind. One less bill to pay, living debt free or even within a predetermined budget will reduce your stress level dramatically. If you are not stressed out the quality of your financial decisions will improve saving you even more money.

    * I pay my mortgages and utilities electronically using a bill pay service

    Unless you have been using a credit cards for at least three years and paying the balance off on-time every month then John’s advice will probably cause you more problems than it solves. BTW, there is a reason why credit card companies “give away” all of those great services….someone else has paid for it by mismanaging their credit. If there is a benefit you can’t resist make a payment to your card in advance of your purchase. It’s much more fun calling the credit card company and telling them to send you a check for your overage than it is writing a check to them for the dinner you ate last Friday. A popular green uncredit card is sending me a nice Christmas check for $294, should arrive today.

    If you feel you need advice on credit cards do not take John’s advice. Especially, eschew this little nugget if you are a fledgling entrepreneur.

    1. I think you might want to write and ebook and sell it…partner up with chow and become an affiliate. You can sell it for 99.99 with a bonus interview….LOL…good thoughts you have there

      1. sdogood says:


    2. Your #1 point is flawed – if people realise that a credit card was a form of cash, they wouldn’t spend beyond their means.

      1. Pnigro says:

        Actually it’s not flawed because it’s true. Most people spend more money using credit cards.

        1. people spend more using “cards” the same way people spend more money at the casinos. We know what it feels like to have a wad of cash and it dwindle when we spend more of it. Well, things that only represent cash have less meaning to us. It is a fact that if you will spend less of a 100 bill than you would with a card with a 100 limit

    3. Harry Tran says:

      I hear you on #5. It is just great to have one less bill to worry about whether or not it has arrived yet in the mail. And if that bill comes in late, you get all worried about whether or not you’ll be able to make that payment on time or suffer a hit to the credit score. I had 4 cards that I would randomly pick to pay off a purchase and paid those balances off on 3 of them, but before they’ll send me the bills and I’d hate to check the mail each other day for a new bill to arrive.

      And as for #1 it is so true, because when you walk into a store with the intent of using the cash sitting in your wallet (Which is probably not much, since walking around with cash doesn’t feel very secure anyway) you can pull out that money to pay and see the wallet get less chubby in a bad way. Seeing is much easier to believe than trying to guesstimate your spending with store receipts and electronic credit limits.

    4. Mad Ape says:

      I appreciate your comments but personally I disagree. Like I said in my previous comment we do not charge a cent unless we have the money to immediately pay for our purchase.

      You are referring to people who are not disciplined. If you live beyond your means and buy stuff you can not afford to pay for and then get stuck with high interest and making minimum payments..consider yourself a debt slave. It is the debt slaves that have ruined the economy. From individuals to corporations to governments all of this overspending…living beyond our means…has triggered this world-wide depression.

      So far we have not been charged interest and it is paying us to use the credit card. My wife and I each have a gold card tied to the same account, so our air miles accumulate together. We get enough air miles in the run of a year to buy two plane tickets to warmer climates. We would never have been able to do that by paying cash.

      Also, as another reader pointed out, it is a great way to track your purchases. The credit card statement is help me do my books.

      I live by the motto that cash is trash. I think it will become worth less first then complete the transformation by becoming worthless in two to five years.

      Smoke ’em if ya got ’em

      The Mad Ape

  32. Tyler Cruz says:

    I honestly don’t know why it takes ‘discipline’ not to go into debt on your credit cards. I had my first credit card at 15 or 16 (co-signed with parents) and have never ever had an outstanding balance on it; I have always prepaid. In a sense, they always owe ME.

    To me it’s like not sticking your tongue on a frozen post or crossing the street without looking… it’s common sense.

    I just don’t understand how people can buy that new TV on credit when they’re only 1-2 paycheques away from not paying the rent…

    1. Harry Tran says:

      Life happens, not everyone runs up a debt on their credit cards because they want a brand new TV. I guess my situation ended up like this, I had to take my money in the checking account to pay for college tuition (money I did have at the time) but still had a balance on my credit card. To me at the time the $1,000 for tuition was more important than clearing the $1,000 I racked up on from previous months spending.

      Putting off paying the debt with 0% APR at the time seemed like the better route to go rather than postponing the education. I mean where I am sitting right now, I have more than enough to cover the entire balance outstanding, but that would mean that my savings account will be smaller and I am trying to carry 3 months emergency fund, since the economy looks so bleak that I want to make sure rent is covered before credit card debt is repaid. The $5 a month interest that I pay isn’t hurting me any at the moment. And any new purchasing that I do I pay that balance off at the end of the month along with some of the outstanding balance.

      Just saying life happens, and that’s where the trap can happen when using credit cards no matter how hard you try to pay off debt quickly.

      1. Michael Kwan says:

        That just sounds like poor planning to me. You knew that you had to pay tuition soon, so you should have had that $1,000 set aside for that purpose already, factoring it into your monthly expenses. If that were the case, you wouldn’t have “racked up” an extra $1,000 in expenses over the course of the previous month. If you didn’t have the money, it would have made more sense to get a student loan rather than carry a balance on your Visa. That way, you don’t have to pay off that debt until you graduate.

    2. Mad Ape says:

      It is called the ‘I want it now and don’t want to wait until I have the money Syndrome’ This syndrome, once it infects you will transform you into a debt slave zombie who is forced to give the credit card companies part of their hard-earned income.

      Debt slaves are like crack addicts. They get their fix and pay for it for the rest of their lives.

      The Mad Ape

    3. BusinessX says:

      Part is a pretentious desire to be successful. That is not really to be successful, but to look successful. The other is a conditioning that one not need wait for anything. Microwave society. Want a 50″ HDTV, no need to save for it or earn extra income to acquire it. Get it now on credit.

  33. CardSeeker says:

    Compare credit cards at a site like http://www.creditcards.com

  34. TStrump says:

    I think the ‘all-cash’ method should be temporary until people get their discipline back.
    I put EVERYTHING on my credit cards because I get cash back and it’s easier to track expenses.

  35. Harry Tran says:

    I agree with the idea that cash is bad to be used for those with financial discipline, problem is that most of us do not have such discipline and react that a credit limit of $5,000 means you can spend up to $5,000. Whereas most people don’t see that $5,000 credit limit doesn’t mean you have $5,000 unless your checking/savings account has $5,000 to cover the bill at the end of the month.

    I use to pay for everything with credit cards, and paid it off in full. But even that caught up to me, because the cards do keep adding up, especially when you end up losing a job or two in the middle of trying to pay the bills. I use to spend the check before the money came in, which is learning things the tough way. But now, I still pay for things with credit cards, but only for the essential things I need, and don’t go spending until I have the money to pay for it up front.

    Some lessons are better to be learned on paper than the hard way, but most of the time they can only be learned the hard way to stick.

  36. game-girl says:

    The blog is a real academy of finances with its own professor staff such as Stogood and the others .

  37. Harry Tran says:

    The writing down of what you spend really works out well.

    Even though I charge my purchases to a credit card, I choose to write down my purchases based on the receipt amounts when I get home onto an Excel worksheet. This way I don’t wait until the monthly statement comes in to check my spending.

    I find that many card companies have offered the paperless statement too. And to me, I have signed up for them for many bank accounts and cards, and for those I will say I rarely ever want to log onto a bank website to check my paperless statements. I think that for those who don’t have alternate means to keep track of their spending a paperless statement is doom for their finances, as they may not have the discipline to write every line item down somewhere else and also never choose to read those online statements either and just pay whatever the card companies ask for.

  38. Jon says:

    Credit cards are essential to running an online business, no clue how you can make it without using them as the alternatives cost more… this is good advice.

    http://WoodMarvels.com – Create Unique Memories

  39. Credit cards are heavenly to some and hell to others.


  40. paul says:

    I am using my credit cards sparingly though as I don’t like to be at the mercy of these credit card companies.

    They can wreck havoc on our credit score even if we are disciplined.

  41. Toy Store says:

    Regardless of how you spend money, you have to be smart about it. I think Americans, at least, have way too high of a propensity to live far above our means. So we spent most of our lives paying off credit cards, and wasting money in high interest rates. So for most people (who are not financially responsible!) the first step is to get back in the black, in whatever manner works best for that person – cash or credit.

  42. Brian says:

    What Chow is preaching here is not very sound advice for those with REAL credit problems, and out of control spending habits.

    The few that use credit cards the way he describe should obviously NOT worry, but most of us are incapable of using credit cards responsibly and end up in a multiple-year-long battle with debt, stress, and money worries, sometimes lasting decades.

    This is not unlike the bad habit of a drug addicts or an alcoholic. Although many can handle an occasional drink without going overboard, an ancoholic cannot. You’d never recommend to an alcoholic that he learn how to drink more responsibly, you tell him to STOP DRINKING.

    Although John makes some good points about how and why a credit card offers you protection, a paper trail, reward points and so forth, he’s merely buying into what the credit card industry has spent decades bombarding us with, like the cigarette manufacturers, and those in the gambling business. They put on this seemingly transparent imagine, when in fact they know that their products are bad for most of us, but that is how the make their money.

    If you’re like John, or any of the other 5-15%’ers that make a good living and pay of your cards each month, this is sort of a silly subject. If you’re with the remaining 85-95%, beware of your spending and learn about credit, how to avoid “bad debt”, and most importantly, learn how to spend within your budget and live within your means if you want to stay debt free and not weighed down.

    Have a fabulous 2009!

  43. Pnigro says:

    Are these so called “rewards” REALLY worth it? How much are these “discounts” you’re talking about? How much do I have to spend in order to win a trip to Thailand?

    I think the title should be: If you are into consumism, win a lot of money and are very disciplined and responsible, in other words, if you belong to the 1% – 5% of the world’s population, THEN you should never live on cash.

  44. BusinessX says:

    I am actually surprised that the number of people who pay off their credit card balance each month is high as it is. I would have guessed maybe 10% or under. Half is actually amazing.

  45. johnray says:

    Nice Read! For a change
    Really? now that’s a first. While your article seems to be true in your perspective, that cannot be probably true here in Philippines. The reasons for those credit card rewards can be simply put as an enticement to spend more. While you may think that it’s all about spending the money we worked for wisely, i think the main issue is how we spend the money we worked for, work for us. If people are more aware of living within their means and doing it, just probably their means would go higher. I believe that the main reason why the US is having a financial crisis, is because wants have been terribly catered and the resources neglected or sustained.

  46. mike says:

    Great post, John.

    Cash is *not* king, for people with good or bad credit!

    It is Go2Wellington who wisely states, “Well, I think whether to use CC or Cash, it depends on a lot of factors.”

    In other words, if you cannot qualify for a bad credit credit card (secured card), you have no choice…it’s cash! There’s a factor for you.

    Many comments left for John naturally assume people’s credit card problems arise from financial irresponsibility…i.e. “those damn people just can’t control their spending.”

    For 10+ years, I have worked with people dealing with bad credit. Are you aware that over 82 MILLION Americans suffer from bad credit? A bunch of irresponsible people, huh?

    At first glance, it sure seems like it. Over 90% of the credit cards “problems” I see come from medical bills paid for with credit cards.

    I rarely see the irresponsibility commonly assumed to cause credit card suicide & bad credit.

    No question about it, credit cards require discipline as many of you reiterated. Some of you mentioned using debit cards instead of credit cards.

    Just a thought here: Are you aware of what might happen if someone were to steal your debit card and/or card number? Do you think that a thief needs your PIN and card to cause you harm? Do you think you’re safe from loss by using your debit card?

    For those of you defending your debit cards, you might want to get with your bank and play the “what if…” game…just to be safe.

    Yep, I’m with John on this one, “Living on cash is the worst piece of financial advice ever.” Well mostly, as living on cash is not the worst piece of financial advice…EVER!

    Worst piece of financial advice EVER came from my stock broker 🙁 I *thought* I’d always been a conservative investor, until I peeked at my last statement. I guess I’m going to be working until I die….

    …or until John divulges the secrets of his blogging success 🙂

    Thanks, John, for another great post and for well-thought out comments from your contributors.


    P.S. Do any of us really expect reality from “reality” shows such as “Till Debt Do Us Part”? If somebody wants to promise me $5,000 to jot down every 25 cent expense as I give up cable TV and broadband Internet, I’ll do it for a month while they’re shooting the show. That will be my “reality” for the time being. 🙂

  47. Good article.. But using credit cards is just like taking loan from a back.. They are for your facility but sometimes.. You might get stuck into them..

  48. As some of the comments have said, if you are able to effectively manage your credit card balances, then by all means go for it. I can’t even remember how many times I’ve gotten $100 or $200 gift coupons from Amex from doing just that over the years, but discipline is key.

    If you’re the type of person that gravitates toward ever-rising credit card debt, then start slowly with a combination of techniques that use both cash and credit until you get to a point that’s both comfortable and rewarding.

  49. Money is one of my favorite topics. I’m going to have to play devil’s advocate.

    – You would earn more on interest using a money market account then the ‘rewards’ you get from your credit card.

    – You can rent a car, fly the friendly skies and rent a movie with a debit card.

    – Debit cards provide the same paper trail and protection you get from using a credit card.

    I’m in your house and mean no disrespect but I have to disagree with you on this subject.

    1. mike says:

      Brian, since I don’t know which debit card you’re referencing, I’m not disagreeing with you.

      However, most debit cards do NOT offer the same protection as a credit card.

  50. Ethan says:

    John this is a very bad advice. You should stick with telling ppl how to make money online and not give crappy financial advice. This is from Dave Ramsey http://www.daveramsey.com/etc/cms/credit_card_q&a_7041.htmlc

    Credit Card Q&A With Dave

    Is there ever a good time to have a credit card? NO. NEVER. When you play with snakes, you get bitten.
    “But Dave, I pay mine off every month.”

    CardTrak, who gets their information from the credit card companies, reports 60% of people don’t pay your credit cards off every month. Cambridge Consumer Credit Index found that 47% of balance holders only make the minimum payment. You aren’t paying it off every month.

    You’re also paying more. A study by Dunn and Bradstreet showed that the credit card user spends 12 to 18% more when using credit instead of cash. After McDonald’s began taking credit cards, they found that people spent $5 to $7 more per sale. It hurts when you spend cash and therefore you spend less.

    “But Dave, they give me airline miles.”

    Consumer Reports says 75% of the airline miles are never redeemed. You won’t wear the hat or t-shirt. And the next time you are in the store that gave you a discount for signing up for a card, you will have forgotten your cash; you’ll use the card and then carry a balance again.

    “But Dave, I need it for travel and to buy stuff online.”

    Between media appearances and live events, I guarantee I travel more than most of you, and I do it all with a debit card. I don’t have a credit card. I buy things online, stay in hotels and rent cars all the time using my debit card. The only thing the debit card won’t do is get you into debt.

    “But Dave, I have to build my credit.”

    Bankers, car dealers, and unknowledgeable lenders have told America for years to “build your credit.” They are telling you to get debt so you can get more debt because debt is how you get stuff. Those of us who are debt free know that cash buys stuff better than debt.

    “But Dave, what about buying a house?”

    Since you aren’t “building your credit” you will need to find a mortgage company that does actual underwriting. That means they are professional enough to process the details of your life instead of using only a Beacon score (lending for dummies). You can qualify for a conventional 15-year fixed-rate loan if:

    You have paid your landlord early or on time for 2 years.
    * You have been in the same career field for 2 years.
    * You have a good down payment.
    * You have no other credit.
    * You are not trying to get too big a loan.

    The big question is, What do millionaires do? They don’t get rich with free hats, brownie points, or air miles. What do broke people do? They use credit cards. I rest my case.

    1. John Chow says:

      Dave Ramsey is a dumb ass. Following his advice will only keep you poor. Just because half the people don’t pay off their balance in full each month doesn’t mean you have to be one of them. You have a choice. To be a dumb ass and run a balance or be a financially responsible person and pay it off every month. I

      As for what millionaires do, that’s easy. They use credit cards and pay it off every month. I should know, since I’m on of them. I rest my case.

      1. BusinessX says:

        Well said

        That goes not just for money, but blogging advice. Unless one is there, how will one know? The only thing one can offer up without having achieved success is opinion. Unfortunately, many people can’t even offer their own opinion, but the opinion of others.

      2. Ethan says:

        There are more people who can testify that Dave Ramsey got them out of debt and made them more financially rich then you can ever say about your blog John.

        You haven’t made any counter argument to ant of Dave’s points.

        Dave Ramsey is a multi-millionaire many times over bro.

    2. mike says:

      Okay, Ethan, it’s clear you’re a Dave Ramsey “groupie.” So I won’t try to knock you off Dave’s high-horse, but I do want to paint a REAL picture for everyone else thinking (Dave and/or you) is accurate on these statements:

      1. Most people are not debt free and cannot pay cash for a big purchase. Without credit, they will not get financed unless they opt for a car at a “buy here, pay here” lot. Exorbitant interest rate!

      2. A person will not buy a house the conventional way TODAY (and we are talking about reality and today, right?) regardless of the amount of down payment (with financing needed). I don’t from whom Dave’s or your real estate mortgage info comes, but it’s inaccurate. I am a Realtor and a mortgage broker and I deal with this topic daily. Many other people must be listening to you and/or Dave peddle inaccurate information. Even if you respond with the name of a mortgage lender (and we are talking about the United States, right?) who will do “wink and nod” mortgage underwriting & lending, the Countrywides, Wells Fargos & Nationstars of the US are NOT underwriting as you’ve “expertly” suggested. I also could mention lenders who do underwrite their own portfolio, and they could give a crap about your rent payments. Unless you’re building what is called an alternative credit file with a 2nd tier bureau that contributes to a Big 3 file, that VOR is irrelevant to mortgage approval.

      Ask Dave to give you the name of even one mortgage lender that will approve financing on the following listed items:

      “But Dave, what about buying a house?”
      You can qualify for a conventional 15-year fixed-rate loan if:

      You have paid your landlord early or on time for 2 years.
      * You have been in the same career field for 2 years.
      * You have a good down payment.
      * You have no other credit.
      * You are not trying to get too big a loan.

      Why did you have to step in to some other person’s blog and attempt to get personal? If you disagree with John, fine…but why try to get personal especially as a Dave “groupie” without your own facts?

  51. AJ Kumar says:

    Since I’ve been in the banking industry, I can definitely understand what your talking about here John. I agree with you 100%.

    I hardly ever carry cash. Beside the fact that times are tough ;), I don’ carry cash because I know exactly how filthy it really is. Literally, cash is DIRTY!

    They say that chances are, the dollar bill you have has been in someone’s panties. So I avoid carrying cash because it’s just way to filthy for me. I stay clean! 🙂

  52. Atniz says:

    The only reason that most credit card users hates it because it gives you the buying power. No matter where you go, you will always have the power to own it. Of course there are many good reason to use the card but if the payment is good the credit limit will be increased too. One of my friend have $300,000 credit limit on his credit card. He is making millions of money each year. He could buy a Ferrari with his card. The only problem is we need to control our desire to own things.

  53. Tommy says:

    Nice post on Credit cards. I never knew that a CC can have so many benefits to us till now. Thank you!

  54. Pnigro says:

    The only advantage of using a credit card over a debit card is the “rewards”, which are only worth it if you spend a lot. Try spending $1,000 per month with your card and tell me if you think the rewards are worth it.

    I am against spending a lot, and I am not a millionaire. So there’s no reason for me to use a credit card over a debit card.

    And lol @ you saying you don’t spend more money using cards. How do you know that? Statistics > you. I am an educated and experienced poker player and no matter what you say about “I have control and I’m responsible”, we as humans will always give less value to chips than cash, even if it’s a little. That little is enough to convince me that the credit card “rewards” are nothing more than an illusion.

    Oh and did I mention that most stores in New York gave me a discount when I offered to pay in cash instead of card?

  55. Ty Brown says:

    Store clerks always bug me when I make a purchase for even a couple of bucks with a card. I never carry cash, it makes it too easy for me to spend.

Comments are closed.