Can Cash-On-The-Barrel Get You Out Of Debt?

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Debt settlement services are all over radio, TV, the internet. They seem like a shot at redemption for many people, but often the solution to our biggest problems can be found in the little things we do every day.

Overspending is a classic cause of debt problems, but how we pay for products and services we buy can contribute as well.

All credit problems start somewhere, and I don’t think it’s much of a stretch to say that they typically start right about the time that we begin to become comfortable with debt—not so much being in debt, but when we begin using it and thinking of it as a convenient tool.

Not so long ago, when people tended to avoid debt, paying in cash was as natural as eating and sleeping. In today’s paradoxical marriage of convenience and complexity, paying in cash seems almost exotic, but for people having debt problems it could be the financial salvation they’re hoping to get from debt settlement services.

What are some of the advantages of using cash-on-the-barrel to get out of debt?

Paying cash means learning to live without credit

The first rule of getting out of debt is not to use it. Only when you stop adding to your debt can you begin seriously paying it down. Paying with cash (or checks or debit cards) is a major step in that direction. Continued use of credit is like playing with fire.

Often, the difference between people who pay their credit card balances in full each month and those who carry a constant balance is a steady paycheck. Once that paycheck is gone, the credit card habit that was mostly for convenience and cash back rewards can become an unexpected burden.

Suddenly, the cards that were faithfully paid each month, slide into next month, then another and still another. Now you’re carrying a balance that you can’t payoff out of a shrunken paycheck and you join the ranks of the revolving debtor class.

No bill to pay next month

Do you know anyone who enjoys paying bills? I’ve never met anyone who does and I suspect that’s because the majority of people have to do at least some stretching in order to balance their finances each month. Bills mean stress, and the more bills you have, the more stress in your life.

We have enough bills to pay without adding last months’ excesses to the pile, and that’s the position credit puts us into. How much fun is it to open up your credit card statement from the previous month only to find out that there’s a discrepancy or a complete mystery charge appearing on the statement? Now you have to play detective, and initiate a series of phone calls to the credit card company and the vendor to get it straightened out.

One of the unheralded advantages of paying by cash is that if you use it faithfully, you also reduce stress in your life. Paying by cash represents a series of small financial transactions that we deal with one at a time. Credit represents the accumulation of many transactions into a small number of larger payments, and that can create stress in a hurry.

The smaller your pile of bills when you pay them, the more control you’ll feel and the less stress you have to deal with.

No chance of debt if you can’t pay your credit card in full next month

Even if your custom is to pay your credit card balances in full each month, the potential for a windfall of bills in any given month is always there. When it hits, and funds to pay the credit card in full aren’t there, you’ll be tempted to roll the balance forward to the following month. Do that once and there’s more than a remote chance you’ll do it again.

If you’re using credit for regular expenses, you’re courting the potential to run up debt at some point in the future. Credit becomes a habit, and whether they’re good or bad, all habits are little more than comfortable traveling companions that we come to develop a benign view of.

If you pay by cash, there won’t be any excess debt to carry into the next month.

No chance of identity theft

One of the unsung advantages of paying with cash is the complete absence of the potential for identity theft. Cash leaves no paper trail, no personal information on file, and no opportunity for manipulation of charges after the fact.

The counter argument is that credit cards limit the loss on fraudulent charges, usually to $50, thus insulating the card holder from financial disaster. While that may be true in a strict financial sense, there’s far more at risk than just money.

When a thief has access to your personal information, the far greater risk is that it could be used to hijack your identity to gain more credit or some other negative purpose. Information is often more valuable to a thief than money, and often the real target of the theft. When we use credit, our information is laid out on the table and we’re completely at the mercy of those we provide it to.

When you pay with cash you have none of that concern and can leave each and every merchant you frequent with complete confidence that your identity was safe when you left the establishment—safe because it was never provided.

No bargaining with the Devil to see if you can afford something

Most of us know whether or not we can afford to buy something. When the plastic comes out, it’s usually an unconscious admission that we can’t.

When you’re on a cash-only spending diet, either you can afford to buy something or you can’t—there’s no inner conflict. Credit is a form of financial scheming that puts us in negotiations with ourselves or our spouses in order to come up with a way to pay for something we know we can’t afford. Plastic makes it too easy.

If we only pay with cash, we’re limited by the amount of cash in our wallets, forcing us to acknowledge that we can’t afford something. In a way, admitting that to ourselves is a form of liberation; there’s no agonizing over trying to come up with a way to twist reality so we can buy it. We can’t afford it, so we move on…

Paying Cash = Spending with No Strings Attached

This one is really a summary of all the others above. Paying with cash is virtually the simplest way to transact business. You drop down your money for payment, take your merchandise, walk away and forget about it. Every transaction has a period on it.

No bill will come in next months mail, no debt will accumulate, your identity won’t be compromised and the debts you do have will gradually melt away if you do nothing more than make the scheduled monthly payments and don’t add any fresh charges.

Paying with cash is simplicity at its best, in a world where simplicity itself is something of a revolutionary act.

Do you try to pay with cash? Have you ever thought about making the switch? If you didn’t, what stopped you?

Kevin At Out of Your RutThis post is from FiscalGeek staff writer: Kevin Mercadante. I’m very excited to have him contributing to the site. You can find out more about him at his own blog OutOfYourRut.com.

(photo credit: stopnlook)

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{ 19 comments… read them below or add one }

Greg McFarlane 2010/08/07 at 8:20 pm

The first rule of getting out of debt is not to use it. Only when you stop adding to your debt can you begin seriously paying it down. Paying with cash (or checks or debit cards) is a major step in that direction. Continued use of credit is like playing with fire.

Amen. That is glaringly obvious advice that many people hate to follow. Seriously, asking “Should I use a debt settlement service?” doesn’t have a right answer, only because it’s a wrong question. Right up there with “Should I go to a formal drug rehab clinic?” The answer is “No”, as in “No, you shouldn’t be in a position to ask the question in the first place.”

Paying cash is great, the only disadvantages being the chance of theft and the inconvenience of having to find an ATM (that doesn’t charge you a fee, of course.)

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Kevin 2010/08/08 at 9:22 am

Greg, good points on the limitations of cash. But as far as theft of cash, one benefit is that your loss is limited to the amount of cash carried, where with credit cards your whole identity can be lost, costing potentially much more.

As far as cash access, once you’re accustomed to using cash, you’ll find ways to get access without paying fees. One way is by writing a personal check and cashing it at the bank, another is to use a bank that doesn’t charge ATM fees (which is what I have).

People used cash for generations without problems. A debit card used in conjunction with cash will take care of most problems. There’s always a way around limitations if you’re committed to a strategy.

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Spedie 2010/08/09 at 8:34 am

I think this is a wonderful article. I have tried to talk others out of using credit cards (CC) at all. I heard a lot of excuses. I have never seen such an article for stopping the use of credit cards that was as good as this one!

I got rid of my last CC on Xmas Day 2007. I will never have one of them again. When I got rid of my last one the credit card industry had not gone totally nuts yet. So, I didn’t get burned by their fees and games-with-their-customers to get fees like they do today.

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Kevin 2010/08/09 at 8:46 am

Speedie – Thanks for your kind comments. I agree about the excuses part! Most of us can do quite well without credit cards and the tempations they bring to our lives. If need be you can keep one card for those times when a credit card is a true advantage, such as ordering airline tickets (but you can also do that with a debit card).

Personally, I find not carrying last months expenses into this month to be quite liberating, and well worth foregoing what ever benefits credit cards might offer.

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Premium Finance 2010/08/10 at 1:17 am

Good read. Very informative. This can help a lot of people who are having a hard time with their personal finances.

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Budgeting in the Fun Stuff 2010/08/10 at 2:31 pm

I like my credit cards. I think they are great if you have natural control over your spending. I wrote a staff writer post about it at Sweating the Big Stuff. Here’s my top reasons (not excuses, actual reasons):

1. I feel safer carrying easily cancelled credit cards than I do when I carry cash.
2. My reward cards offer me benefits other than credit including longer warranties on electronics.
3. It’s easier to budget since I use credit card statements to input my spending data. It’s also a huge part of how I automate my finances.
4. My husband and I spend less with cards than with cash because the record stares us in the face for the month. Cash seems to drip out of our wallets when we’re not looking.
5. We don’t spend on things we wouldn’t buy anyway and get $300-$400 back every year to boot.

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Kevin 2010/08/10 at 2:55 pm

Budgeting – Good for you and your husband that credit cards work in your favor! While allowing for those who manage credit cards well, it’s probably best to advise against them for the majority of people given the easy potential for mismanagement.

It is different for each person, but I suspect that for every person who is truly good with managing credit card debt, there are three or four who claim to be/think they are/pretend to be who truly are playing a dangerous game.

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Jenna 2010/08/12 at 11:18 am

I’d be interested in hearing about people’s real experiencing using a debt settlement service. Seems like they are always on the TV or radio, yet I don’t know anyone who has used one (I can think of a couple people who probably should though).

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Kevin@OutOfYourRut 2010/08/12 at 12:33 pm

Jenna – I’m speculating here, but maybe we don’t hear about more people taking them because people talk to the companies then realize it isn’t a good deal. I’m with you, I don’t know anyone who’s taken one. Or maybe I don’t know anyone who’s admitted to using them.

If you think about it, if someone uses one and it’s a success, they’d probably be telling everyone about it. It would after all be an accomplishment to get out of debt.

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Jenna 2010/08/12 at 1:08 pm

Kevin – Totally agree. If I was in a financial swamp and found a great organization to help me out, I’d be telling everyone about it. (Might fib about how much of a swamp I was in) but still be sing the company’s praises none the less. Weird. Now that I think about it, I don’t think I’ve ever seen a success story commercial for any of those companies…

Moneyedup 2010/08/12 at 7:19 pm

I see these ads all the time too. These companies claim that they can eliminate your debt or cut it in half. I often wonder just how this can possibly happen. I agree that spending only what you have or paying in cash is a good way to avoid debt. Credit cards debt is caused by spending more than you have, and when you just pay in cash you can’t possibly do that.

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Cathy Moran 2010/08/13 at 6:41 am

Debt settlement works only in theory, not in the real world. The biggest indicator is that the company takes their money up front, so by the time that the client has figured out that creditors won’t wait for a settlement fund to build, the settlement company has their money in hand. Whether rational or not, most creditors will not reduce your principal balance just because you ask. Settlements get better (i.e. cheaper) the longer the debt lingers unserviced on the creditor’s books. Debt settlement companies prey on stressed debtors who desperately want a cohort in their attempt to resolve their problems.

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kevin 2010/08/13 at 7:19 am

Moneyedup – Cash imposes a level of discipline that credit cards can’t, ie, you can’t spend more than you have if you’re paying with cash. With credit, the temptation is always there.

Cathy Moran – Good catch with debt settlement companies collecting the money up front. It would seem that if they took it out of monthly payments they’d have more incentive to keep you on track.

I’d seen the results of debt settlement services up until a couple of years ago (when I was still in the mortgage business) and most of the time it wasn’t encouraging. People got into them and couldn’t pay for the same reason they couldn’t make their regular debt payments.

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Norman 2010/08/15 at 7:18 pm

I’ve tended to use cash for most of my purchases for years now and it has served me well. Where I live there are tons of branches and ATMs around town so I can easily get out my spending money for the week. The only reason I keep a credit card is for those large purchases like when I purchased my laptop or for travel and other online purchases. The key is to pay it off when the bill arrives and not carry a balance. I’ve seen the amount of damage they can cause to people’s lives when they let it get out of hand and I don’t want to fall in that trap. Cash is KING Kevin.

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Kevin 2010/08/15 at 7:59 pm

Norman – Having worked in credit for many years, I’ve seen the damage they can to as well, that’s why I feel so strongly that cash is the way to go.

BTW, for online purchases, PayPal works just as good as credit cards, and it works through your regular bank account.

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Norman 2010/08/16 at 9:41 am

Thanks for the advice about PayPal. I will keep that in mind the next time I make an online purchase. I’m slower to catch on to these things…I’m over 50, so in internet years that makes me like 105.

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Kevin 2010/08/16 at 9:57 am

In INTERNET YEARS!?!? That’s too funny! You need to write a post about that. Do you mind if I use that term in the future???

Greg McFarlane 2010/08/16 at 9:59 am

But from the merchant side, don’t forget about the 1.9-2.9% fees.

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Kevin 2010/08/16 at 12:12 pm

True, but as a buyer there’s no fee.

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