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Queen of free: Plastic payment poses problems

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The major security breach at Target during the holiday season has many consumers puzzling over whether to use plastic at the register. Greater threats lurk over whipping out your credit card than stinky cyber-thieves. While incredibly convenient, plastic payment places you in more danger than you might realize.

Spending more

You spend more when you use plastic, even if it’s a debit card. Studies show that people who spend cash instead of using credit cards can spend as much as 40 percent more on their purchases.

Handing over a George Washington or an Abraham Lincoln to pay for you goods actually activates the pain center in your brain. On the whole, humans look to avoid pain. Hence, you’ll spend less when you use cash than you would if you were charging it up.

Even a budget ninja like yours truly does better with cash in tow instead of the handy debit card.

Especially in the grocery store, cash causes me to keep a better running total of how much I’ve spent before I hit the checkout. I can make hard choices about what I really need and don’t. When the cash is gone, I’m finished shopping.

Pay it all off

The temptation of paying only minimum balances. When credit cards are our primary means for purchasing, it’s easy to miss the totality of our actions.

The bill doesn’t arrive until approximately 30 days later. Many times, we can’t even remember what purchases we have made. Then, reality sets in and we realize we can’t pay the entire bill.

What’s the big deal? You can just make the minimum payment, right? Wrong. Interest seems so harmless in the early days when your bill seems small. But user fees and interest rates quickly rack up your overall costs. Make a late payment, and they can double or even triple.

When you can’t pay the bill in full, you many times end up paying two to three times the original purchase.

What seems like a harmless garden snake turns into a rattlesnake that bites you in the rear, poisoning your finances.

Little reward  

You’ll never collect enough reward points or airline miles. Frequently others push back on my anti-plastic rants with, “But I use my credit card to collect airline miles, collect points, gain cash back.”

This is an argument that I simply can’t believe. Using cash will allow you to spend less so that you can save actual money instead of points that you could use for all of the above.

Plus, the temptation is simply too great to carry a balance on your account.

Again, the interest will quickly outweigh any benefit you might gain through the use of the card. By the way, debit cards have reward programs without the risk of credit.

Little Discount

Step away from the clearance or the 10 percent off sign-up discount. I love a good deal. In fact, typically when someone tells me how much they love my shoes/sweater/coat/bag, I quickly tell them just how little I paid for said item.

But can I be honest with you for a moment? No sale is a good deal when you’re spending money you don’t have.

The discount you’ll receive is much less than what you’ll end up owing in the long run.

Remind yourself it’s not really a bargain if you’ll still be paying for it years down the road.

Debit cards

But how do you book hotel rooms or airline tickets? Purchase online? You have to have a credit card. Our last credit card bit the bullet in February 2008. We have traveled, made online purchases and successfully lived in the modern world for six years without a credit card. It is possible. I promise. Our debit card has the backing of a credit card company and runs through as credit but still deducts the payment amount from our checking account. All of the protection, none of the peril.

My hope is that consumers will become more leery of using plastic due to the recent retail security breeches and be scared into financially savvy behavior. Getting cash from the ATM or setting up a cash budget system might take a few more minutes out of your day. But the rewards are worth more than their weight in gold.

Greenwood resident Cherie Lowe and her husband paid off $127,000 in debt in four years and now live debt-free every day with their two kids. Send questions, column ideas and comments to newstips@dailyjournal.net.

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