PF Hour Episode 22: Baker Joins Jim to Discuss Credit Cards vs. Cash

by brian on October 2nd, 2009

This week Jim was able to fulfill a long time dream of faithful listener and blogger, Baker from Man vs. Debt, by allowing him to co-host this week’s show in JD’s absence.  The topic of the day was Cash vs. Credit Cards.  Jim took the side of Credit Cards while Baker is strongly anti-credit and pro-Cash.  This episode was unlike most where all the positives and negatives of each were explained.  However, there were lots of callers and everyone seems to have a story or an anecdote on either side of this debate.

Baker and Jim’s Discussion

Baker has gone almost completely cash only in terms of discretionary spending.  Throughout the show Baker said his “cash only” philosophy started as an experiment just to see if he could do it.  He has lived with credit cards responsibly in the past, so it wasn’t a self-control issue that led him to this lifestyle change.  He and his wife cancelled their cards and jumped headfirst into using only cash.

Jim is Mr. Responsible and has three credit cards that he has used and has never had a problem with them.  He has never carried a balance of credit card debt.  He finds it easier to track his finances with a credit card, and it just works for him.

Baker further expanded upon his opinion saying that the movement away from balancing a checkbook in our culture is a bad thing.  He records each purchase in a notebook at the point of sale.  He described the different emotions as different between using a debit card, a credit card or cash.  The mental connection to his accounts was obvious as he didn’t connect his spending on his credit card to how much was in his checking account (even if he could afford it).  Making a purchase with a debit card made him think back to his account balance.  Then finally, using cash, it was very concrete as to how much money was leaving his pocketbook.

Baker tries to be really targeted with their money.  He and his wife utilize the envelope system, which means he isn’t carrying the random wad around that could become lost.  Additionally, one positive to not having credit cards is that there is less of an opportunity for identity theft, or for people to charge things in Baker’s name on a card.  Even though he may not be responsible for those purchases, it still is a hoop to jump through that is avoided by this strictly cash approach.

Another interesting note about Baker’s “cash only” approach was that he felt an increased desire to grow his emergency fund much larger because he didn’t have the crutch of a large credit limit to bail him out in case a dire situation arose.

Callers and Chatters

Erica ( in the chat room asked how Baker rents a car without a credit card.  Jim partially answered by saying that you can rent a car on a debt card, but they charge you an exorbitant amount to cover the cost of the rental.  Baker added that No Credit Needed recently ran an article about renting a car without a credit card that can be read here.   Erica called into the show later and mentioned the requirement of being a business owner and having a business credit card.  Reimbursing yourself repeatedly for business expenses without a business credit card is an audit waiting to happen.  It also ensures that your company can keep on working instead of running out of funds in your business debit account and being shut off of the services that you offer.

Donna Freedman (Columnist with MSN and Co-Host of MSN’s Smart Spending Blog) called and discussed a couple of personal situations where she was forced to make drastic travel plans to be with loved ones on short notice during very stressful times.  She explained it as a situation where you look around and say, “I can’t believe this is happening.”  She said that it was important to her NOT to have to think about how much was in her checking account so her debit card would be accepted.  Having the credit card allowed her to make those quick plans without having to take her attention off of her family and shift it unnecessarily to her finances.

Cap (Stop Buying Crap) called in to discuss with Baker the benefits of credit cards.  Even though Baker recognizes the conveniences of a credit or debit card, but those benefits just don’t outweigh the concrete feeling of spending cash.  Some of the benefits Jim mentioned included the automatic doubling of a manufacturer’s warranty and reward points.   Baker said he didn’t really take advantage of most of the benefits that credit cards offered and that’s why he doesn’t miss them.  Cap then asked of Baker, if his aversion to credit cards was based on spending habits he had because when he had credit.  He responded that credit cards weren’t a major reason for his debt problems and that getting rid of them wasn’t the solution to his problems.  He reiterated that it was more of an experiment that he wanted to try and has held onto.  Baker expanded saying that he is happy not to take part in the credit industry as it stands right now as it does seem to be an unsympathetic industry to most people on the outside looking in.

FS (Financial Samurai) made his first call into the show by asking Baker about how he dealt with building his credit score without credit cards and how he felt about carrying so much cash since he wasn’t carrying plastic.  Baker did say that he “sort of cheated” as he had a good credit score (in the mid 700s) prior to his cutting up of his cards.  His credit score hasn’t changed much since he shifted to cash only, although he doesn’t ignore it, as there will be a day when he will be looking at buying a house and needing to finance it.  In regards to the amount of cash he carries, Baker is not concerned as he only carries cash for what he is about to spend (for example, if he is going to spend $84 at the grocery store today, that is all he carries).  He isn’t concerned with being mugged or robbed as nothing like that has happened as of yet (knock on wood).

Brian (My Next Buck) called in to discuss two negatives on each side of the fence.  Although he uses only credit now, he did notice a difference in his mentality when spending on his credit card after getting a new cash back card a few months ago.  On the flipside, he did say that he comes from a family where his father would constantly carry around a wad of cash with $500-$700 in it and would lose his money clip and wallet all the time.  Now, not everyone carries this much, but losing a wallet or leaving it at a bar and losing $20-$40 is significant to most of us.  To further emphasize this point, he stated how he has found over $300 in total cash so far this year just laying on the ground.

The next caller was Martha, Jim’s wife.  Jim and Martha started dating when in college, and at that time Jim used credit cards, however Martha only used cash and her debit card.  However, when she started work, she was given the opportunity to travel on her employer’s dime by way of being reimbursed for her business expenses.  This was a problem though, as she didn’t have enough cash in her checking account to cover the expense of airfare, hotels, etc.  She quickly had to get a credit card, but without any credit history, it’s difficult to get a credit card.  She advises that it makes sense for students to get a credit card even for small purchases just to have and pay off so one can build a small amount of credit while in school.

Concluding Thoughts

Baker started to wrap up the show by emphasizing one of JD’s points, “if you find something that works for you, continue to do it.”  He stated that if he hadn’t started to experiment with his finances he would never have found the “cash only” system that works so well for him and his family.  Baker did say using only cash when traveling has been a bit more of a challenge, but not prohibitively so.

Jim’s final question posed to Baker asked what might be the one big headache about being “cash-only” that would push Baker back into getting a credit card.  He responded that the increased automation would benefit him greatly as long as it was properly setup.  Especially with regards to his business accounts (web hosting, domain name, etc.) it is important to keep those paid and to never accidentally miss a payment for fear that his site and/or business would be down for a period of time.

All in all this was a great episode with a ton of participation from listeners and from chatters.  Baker was a popular co-host and we all look forward to the next time he joins the show.

1 Comment
  1. Howdie Brian, great job writing this recap. Awesome job and keep up the good work!

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