In Debt? Go Cash Only

Bob Sullivan’s clean credit card tactic is a great, but dangerous, idea. It works for someone with a little bit of credit card debt and is diligent about paying it off. It can be disaster for someone slipping further and further into debt, giving them a false sense of financial safety.

It’s like buying a diet Coke and a Whopper – it makes you feel good but it’s not good for you.

I have a very well intentioned friend who has over $10,000 in credit card debt. He has a well paid job that lets him easily make the payments on his credit card debts, as high as they are, and he has a great credit score (they love his monthly payments!). Every twelve months, until recently, he would roll that balance over to a new card with a balance transfer and then use the old card as his main credit card (it was now “clean”).

He was smart enough to know that you don’t use the new card, with the balance transfer, because carrying a balance nullified the grace period (as Bob mentions), but he would simply accumulate new debt on the old card. His problem wasn’t math… he just kept slipping back into old habits of buying the latest shiny gadget. He was in love with the idea of getting a $100 item today and only paying $5 a month on it.

What changed? Last year he tried to continue his old cycle and learned that 0% balance transfers were, for the most part, gone and his monthly payments ballooned. He was still fine, he was just paying a lot more. That’s when he asked me about balance transfer offers and I learned about his eye-popping debt. I pointed him to this calculator and that’s when it hit him. 15+ years to pay off his debt and thousands in interest.

Now he’s abandoned all of his credit cards and gone to a system where he uses only cash. One data point doesn’t make a case but the Farhat family saved 24% when they went to cash only. They experienced some headaches, such as waiting in line at the gas station to pay the attendant, but the savings is clear.

Using a “clean” credit card may sound like a good idea in theory, but my friend was doing it (albeit not knowingly) and it was only letting him slip deeper into debt.

Jim writes about personal finance at


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  1. Awesome McAwesomeness says:

    We don’t use CC at all and never will. We got a debit card with a Visa logo and do great! We save money for emergencies and just live off of what we make. The most important part is making a plan for your spending and sticking to it.

    Cash only and the envelope system are a great way to handle that.

    • Bohemian says:

      I have not had a credit card since the first Bush was in office. Cash, savings account and a debit card seem to work just fine.

    • Dondegroovily says:

      Credit is a lot better than debit. Debit still creates the illusion of endless money, just like credit cards, but has none of the consumer protections.

      • ap0 says:

        I don’t have that mindset. Credit may have that endless money idea attached, but debit definitely doesn’t for me. I keep track of my checking account balance daily and base my purchasing decisions on that.

  2. humphrmi says:

    When I was younger, I came up with a very simple system to make sure that there was always cash available for monthly bills. Well, at least it was simple for me, because I was already used to maintaining a checking account register in which I recorded every deposit and withdrawal. I took that a step further, and created “sub registers” – each sub register was assigned a monthly expense, such as gas, food, fun, savings, etc. On pay day, I would register my paycheck deposit in the master check register and then split that up amongst the sub registers. All the sub registers always added up to the total amount of money I had in the checking account, as per the master register.

    So, say I got a $1000 pay check. $1000 into checking, as recorded into the master register. Then $200 went into the gas register, $300 into the food register, $400 into savings, etc. When I was done, all the sub registers added up to the total amount I had in checking, and when I spent money, it came out of both the master register and the sub register for that category. All of this was done with the checkbook register books you get free (or used to, anyway.)

    I still use this system today, although now I use a spreadsheet to maintain everything. I still know exactly how much I have to spend this pay period on gas, food, etc. and it all adds up to how much I have in checking. When I run out of money in one category, I either have to stop spending that category, or borrow from another category. That gives me complete transparency as to where my money is going, and if I overspend, what impact it has on other categories (e.g. borrowing from my monthly ‘savings’ allocation because I spent too much on ‘fun’.)

    Also it allows you to “carry over” cash for expenses that vary throughout the year. Say you pay $50 / mo for electricity in the spring and fall, but $120 in the winter and summer. Ok, figure out how much you spend all year, divide by 12, and put the average into your “electricity” fund each month. During the low spend months, you’ll carry over cash that you can use to pay the higher bills during the high spend months.

    I think it’s a fairly reasonable system to stay on a cash spending basis, assuming you can keep up with the record keeping. How you spend the money is up to you – checks, ATM, bank teller, debit card, whatever, it’s all just transactions.

  3. Mr_Human says:

    So he went from one extreme to the other. I guess if you can’t control your spending, cash is the way to go. If you can control it, you use CC for their convenience, safety, and points, and pay off your balance every month.

    • says:

      The whole “it’ll take 15 years to pay it off at your rate” thing really scared him. The thought of paying off his debt until he was around 45 is quite sobering.

  4. t325 says:

    Not having a credit card in case of emergencies is a dumb idea. It just is, and my experiences in this past week have proven that.

    I went to the bank last Tuesday night to withdraw some cash from the ATM. My card got jammed in the ATM, it sucked it back in and held it. I called my bank’s customer service, and they had to cancel my debit card and issue me a new one, which, of course, takes about a week to arrive in the mail (possibly longer due to the holiday). I had no cash on me (hence, my reason for going to the ATM), and between me working, and the bank being closed on the holiday, I simply do not have a chance to go into the bank and withdraw cash the old fashioned way. If it wasn’t for the fact that I have a credit card, I would have no way of putting gas in my tank or buying groceries or buying any of the things I normally use my debit card for.

    Relying on one card is just a bad idea. Credit cards are not the problem, irresponsibility is. I have a credit card (several, actually, for various rewards and whatnot) and I’ve never paid them a dime in interest.

    • Fred E. says:

      Some people just can’t handle credit cards and will always charge them up. I was visiting a friend and he had problems with his car. Even though the insurance company would pay for a rental, he still had to have a credit card to rent one. None of his had sufficient credit left, about $125-150 if I remember correctly. If I hadn’t been there he would have been out of luck. This was a doctor making a decent salary.

      Bottom line is some people can’t control their spending and will get in over their heads with credit cards and just can’t handle them under any circumstances. They will even overdraw a checking account. They will run up a balance they can’t pay on a monthly charge card like American Express. They will kite checks not intending to commit a crime.

      These people should stick to cash.


    Please, please, PLEASE, Jim… stop using expressions like “he has a great credit score.” You should know better. Not taking all the myriad specialty scores (and bureaus like Innovis etc.) into account, he has THREE credit scores. No one has “a” credit score, and too many people make stupid financial decisions after getting a report and score from only one bureau and thinking it’s the definitive picture; that all three reports and scores are identical. Your friend might have “a great credit score” at TransUnion, but a good score at Experian and a so-so score at Equifax. And let’s not even get into the difference between all the different types of scores.

    But if your friend had “a great credit score,” he was probably not using much of his available credit, which is promising. Now that he’s not using credit at all, great will eventually slip to good, good to fair, etc., especially if he starts closing cards as he pays them off. He can stop using them, of course, but he should do it intelligently. Just stop using them to BUY things. Use each of them to make one bill payment a month (electric, gas, cable, phone, cellphone, car insurance etc.) that he’d make anyway, and schedule automatic payments to pay in full. This way he’s still “using” his cards, and they will continue to improve his credit scores as his balances go down and his payment history/age of accounts go up.

    • LESSTHANKIND says:

      Oh, and it goes without saying that monthly payments on each card should be MORE than the one bill and interest, or you won’t get far. No one said it wouldn’t take work to pay down debt. But you would have paid that cellphone bill anyway… so why not use it to maintain your good credit without running up debt? :-)

  6. Charmander says:

    “His problem wasn’t math… he just kept slipping back into old habits of buying the latest shiny gadget. He was in love with the idea of getting a $100 item today and only paying $5 a month on it.”

    I’d say his problem WAS math. Does he not understand interest charges?

    • Dondegroovily says:

      His problem was Homer Simpsonism – No need to think, just impulsively do it. It’s not the big picture of interest rates and finance charges that was the problem, it was the small picture of individual purchases and Homer Simpsoning in the gadget store.

  7. Bruce Bayliss says:

    Stupidity rules.

    All you have to do is to work out how much you’ve REALLY paid for an item (including interest) over a period of x years (because most people are never actually paying off their debt in full)
    I had a staff member who was maxed out in debt, getting cash advances from ATMs on her credit card and similar idiocy.
    I sat her down with 20 $5 bills and worked out just how much she’s have left over from the $100 after 2 years.
    Something around $55, if I recall.

    “Now would you have paid $200 for those $95 shoes”
    “No, of course not”
    “”Well, my dear, that’s EXACTLY what you did”

  8. Magspie says:

    Okay, this is off topic, but that whole ‘giant burger and a diet coke’ argument really gets to me. I don’t think anyone buying greasy fast food and a diet coke thinks they are being healthy. It’s a favorite topic of mockery, but I don’t think anyone really fits that description. Some people just like diet coke. Also, soda has a ton of calories. 800 calories really is different than 1100. So it may not be healthy, but it is a little less fattening. I prefer water myself, but I’m kind of sick of people making fun of diet coke drinkers.

  9. FrugalFreak says:

    I’ve been CC free for several years now and I’m loving it. No CC company & industry to hold it’s iron fist over me. I got off CCs because I wan’t to see the industry of credit and It’s controlling every aspect of our lives brought to it’s knees. Papa CC industry has gotten too powerful and has become our master.