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October 08, 2007


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Getting cash back sounds great. But don't people tend to spend MORE when they are using plastic? Somewhere in the neighborhood of 15% more on average? We've always used credit cards and paid our balances off in full each month. However, recently we started paying cash and our savings is going up. My recommendation is to cut the card up and pay cash. Yes, you will give up your "cash back" savings. But at the end of the day, you will probably have more in your pocket. If you don't believe it ... give it a try. I was also skeptical but after trying it, I'm seeing the results.

Excellent comment on American Express cash back program!
I highly recommend using 1 credit card for all expenses.
I DON'T however recommend using a checking or savings account.
Steve Herman

" But don't people tend to spend MORE when they are using plastic? Somewhere in the neighborhood of 15% more on average?"
Some people do. Others don't. Take the average, and you'll get "people spend more on average". Averages are misleading. "This desease is likely to affect men in their 50s. There are two known cases - a 98 year old man and a 2 year old boy". Since over half of people don't pay their balances in full, they are spending A LOT more than 15% with plastic. Take 10 people with only 1 of them spending 100% more with plastic and the rest spending the same, and you'll get "people spend 10% more on average". Since over half of people are likely to significantly overspend with plastic, the fact that the average comes out to only about 15% more shows that most of those who pay their balances in full don't spend more. Show me a single study that only looked at some 38 percent of Americans that pay their balances in full.

" However, recently we started paying cash and our savings is going up."
This is purely anekdotal information. Different people are different. I know that when I travel to cash-only countries I spend more because I view cash as already spent. Even in Europe cash taken out of an ATM tends to disappear much quicker. I grew up in a cash-only country and a lot of people there lived paycheck-to-paycheck.

Just be careful with expecting anything out of American Home Morgage in the long run since they just filed for bankruptcy.

I saw on that some people had tried the mortgage program, and their loan was sold to another company very quickly who did not accept the credit card payments. Just an FYI.

Discover also has a clause in their contracts that allows them to use the NAF (national arbitration forum) in which is paid by discover and discover is paid for using them, therefore siding with Discover in 99.999 of the cases. Now the catch is the arbitration process is a violation of your constitutional rights to due process ( trial by jury ). The arbitration can not be allowed if you do not agree to the suit. Both parties must have an EQUAL amount to lose, where they start with a winning hand.

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