Tue 24 Nov 2009
How to avoid paying cash for the holidays
Posted by lizweston under Liz's Blog
[3] Comments
photo credit: Russ Beinder
I’m hearing from lots of people who plan to only spend cash this holiday season to stay within their budgets.
A recent USAA survey found more than half of respondents planned not to use credit cards at all, and 85% planned to pay cash for at least some purchases. Two-thirds planned to use more cash than last year.
I’m all for restraining spending and avoiding debt, but cash has quite a few disadvantages, such as:
Cash is easily lost or stolen. So are credit and debit cards, of course, but plastic comes with zero-liability protection. With credit cards, particularly, loss or theft is almost a non-issue; your card is quickly replaced and you move on.
There’s no “court of appeals.” Credit card issuers serve as middlemen when you have a dispute, a function I’ve had to use a few times. Unless you absolutely, positively trust the merchant to do right by you, you’re better off with that extra layer of protection.
There’s no purchase protection. Most gold and platinum cards will pay to replace your purchases if they’re lost, stolen or damage. Coverage varies by card, but you typically can get reimbursed for incidents that happen within 60 to 90 days of purchase.
Debit cards and prepaid cards aren’t really a good substitute for cash. Not only do they lack credit cards’ protections, but they have their own disadvantages: ridiculous fees in the case of prepaid cards, and the possibility of overdrafts in the case of debit cards.
If you really can’t control your spending without cash, then by all means, use cash. If you want to avoid debt without giving up credit cards’ advantages, though, here’s another approach to try:
Draw up your holiday budget. Include your list of gift recipients and how much you plan to spend on each. Also include travel, decorating and entertaining costs. Adjust as needed until you have a spending plan that doesn’t require you to add to your debt.
Set aside that money. You can transfer the whole amount to savings before you start shopping, or transfer as you go: as soon as you get back from shopping, log on to your bank and shift the amounts on your receipts from checking to savings. When the bills come, transfer the money back into your checking account and pay it off in full. Or you can make payments to your credit card as you go; most credit card issuers allow you to make payments weekly, if not more often.
When using cash, just a word of warning: when the cashier asks you if you want your receipt or if they should just put it in your sack, always take it instead of letting them put it in your sack. If you pay cash, and lose your sack, the finder can return what you bought and get cash for it if the receipt is in the sack. Not so with a credit card purchase, because they will want the credit card to credit the account with the amount that the item cost.
There are definate advantes to cash, though —
1. I find it much easier to budget and find myself spending much less when I see the green stuff passing through my fingers. I am much less impulsive when spending green than going “Swipe!” with a card. If I have $50 on me, there is no possible way that I can accidently spend even $50.01 (and get socked with an overdraft/overlimit fee).
2. Not only are consumers being hit with ever-increasing fees, so are the merchants. Sole-proprietorships, in particular, will often give a discount if you are paying cash. The owner of a restaurant that I eat at two to three times a month, for example, gives a 10% discount when paying with cash. She said she would rather give me 10% off and have me as a happier customer than give their card processing company 50 cents for the transaction plus 6% of the total.
3. Also, particularly with a sole proprietorship in particular, if your total bill comes to, say $154.29 — Lay a Ben Franklin and a U.S. Grant out there. Tell them that’s all you are going to spend. 9 times out of 10 they will take it. 9 of the 10 times they don’t, they will change their mind and catch you before you make it to the door.
Thanks for your comment. I think many people find it harder to spend cash than plastic, but I’ve also heard the opposite (typically from younger people) who say the green disappears from their wallets but they’re more careful when they take out a card.
I like your haggling tip.