CNN Money provides another reason to get rid of credit cards, even if you pay off all your cards at the end of the month and never carry a balance. The reason: people spend more when they shop with credit cards:
Even if you faithfully pay your bills in full every month – and you do, don’t you? – you can profit by kicking the plastic habit, and here’s why. Studies find that paying with a card turns you into a different shopper, one who is less price sensitive and more extravagant. Forgo credit cards and you’ll run up a smaller tab when you shop, plain and simple.
Credit Cards are also getting much more onerous and companies that offer them much less forgiving. Even if you have been using a card for years and paying off the balance on time each and every month, one late payment is enough to incur both fees and significantly higher interest:
A study last year by Consumer Action found that late-payment fees had gone from an average of $13 in 1995 to $28 in 2007. The highest is $39. One tardy payment, even by a few hours, and you can get slapped with a penalty interest rate as high as 32%.
Even if you NEVER EVER make a late payment, even by a few hours, you are still worse off using credit cards. Yes, you may be accumulating “points” but people spend more money with credit cards than they would if paying by cash. As CNN Money notes:
Studies find that when you use a credit card, you buy more stuff and you’re willing to pay a higher price for it.
After McDonald’s began accepting credit and debit in 2004, diners who paid with plastic spent $7 a visit on average vs. $4.50 when they paid in cash. A 2003 survey of supermarket receipts found that credit-card shoppers rang up 30% bigger bills than and carted out twice as much in nonessentials as cash buyers did.
In an experiment that pitted cash and credit-card bidders against each other in an auction for Celtics tickets, Drazen Prelec and Duncan Simester of MIT’s Sloan School of Management found that the credit-card payers spent twice as much as those who used cash. “It’s clear that people who use credit cards are willing to tolerate higher prices,” says Prelec.
The problem with credit cards is that you are much more likely to make impulse purchase and you are less likely to hunt around for better deals and cheaper options. Both of these are the antithesis of frugality.