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Forget Cash-Only: We Just Went Plastic-Only

Allie Johnson

April 18, 2013

My husband and I recently made a big change in the way we handle our finances: We’re now using an airline rewards card for almost all our monthly expenses.

We used to pay bills right from our bank account via online banking and paid cash for almost everything else. Making the switch to credit was a tough decision, and we’re still not sure it’s the right one.

On one hand, I’ve always envied cardholders who rack up airline miles by simply cycling all of their regular expenses through a card and paying the bill in full each month. It seems like the savvy thing to do: There’s free money out there, so why not take it? Also, I love to dream about all the travel experiences we’ll get to have — from watching tango in Argentina to going on a safari in Zimbabwe — with free plane tickets.

Now, back to reality: I’m a personal finance reporter, and I’ve interviewed many experts on the psychology of money. I know that multiple studies show consumers tend to spend more when they pay with plastic than when they pay cash. Why? For one, a study by researchers at the University of Kansas and the University of South Carolina, published in the Journal of Consumer Research, shows that consumers who pay with cash tend to think more about the cost of an item, while those who pay with credit focus on the benefits of the product they’re purchasing. So, if you’re buying a sweater with cash, you’re probably thinking, “Wow, $75? Is this sweater really worth it?” Pull out your card, and you’re thinking about how great it will look on you.

Plus, as this blog from FreeMoneyFinance.com points out:

  • Money spent via a credit card doesn’t feel as real as cash in your pocket. Instead of losing your money at the moment you buy something, you know you won’t part with it until you pay your bill. So, it can be less painful to use credit.
  • Credit cards make it easier to spend money, even if you don’t have it in your pocket. If you go to a restaurant with $100 cash, you know you can’t spend a penny more — and you have to factor the tip and tax into that, too. You’ll be doing calculations in your head as you decide whether to order an appetizer or a second drink, rather than just handing over your card.

So, would it be better — though much less exciting — to simply continue with our old system and save up for trips? I don’t know. After all, everyone wants to think that they’ll be the one to beat the system, right?

I have to admit, I already feel a little bit of a pull to spend more. If we find that we are overspending with plastic, we might try using a hybrid system in the future. We could use the card to pay only for items and services we’d absolutely need anyway — vet care, flights, toilet paper, appliances, that sort of thing — and use cash for things such as clothing and grocery shopping, where it’s easy to blur the line between need and want.

But, for now, it sure is fun to imagine flying around the world for free.