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Credit cards, debit cards, or cash? OH MY!

Last week we unveiled our FREE guide, The Top 10 Things Keeping You Broke. (You can download it here if you missed it.) Understanding your bad habits is a great start in getting on the road to a debt-free and stress-free life. 
But how do you fix these habits and begin to turn things around? Today we are going to tackle the first red flag—credit card debt. 
I recently polled my private and public Facebook groups to ask them why they got their first credit card. Here's what they had to say. 

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The plastic versus cash debate. 

This debate has been ongoing. Some people swear by using credit cards. And if they have good financial behaviors and pay off their balance each month, it makes sense as to why they might deem credit as superior. Then you have those who prefer debit because it helps keep them more accountable. But what if I told you that regardless of where you stand on the debate, both debit and credit cards could be costing you more? This isn’t just an opinion. This has been proven by science.

Now you may be thinking, “Brad, I get why credit cards cost me more—INTEREST! But debit cards?” Here’s a breakdown of both credit and debit cards.

Do you have discipline? Most people don't!

When it comes to credit cards, you must be highly disciplined because it’s easy to spend more than you can afford. McDonald’s reported that their average transaction rose from $4.50 to $7 when customers used credit cards. If people are overspending at McDonald's could they be overspending on other purchases? 

Credit card companies and retailers know this, too! Check out what MasterCard has to say about accepting contactless payment methods like Apple Pay, Google Pay, Fitbit Pay, etc. (The below content has since been removed from the MasterCard website. SHOCKING!)

On average, MasterCard contactless-active accounts demonstrate a higher average spend per account than non-contactless active accounts.

Paying with your smart phone is cool, but it’s likely costing you more money, maybe even more so than swiping your credit card.

Science has produced several studies that raise some eyebrows on the use of credit cards. I found one rather interesting. George Loewenstein, a Carnegie Mellon professor of social and decision sciences and co-author of a paper found in the journal of “Neuron” states, "Credit cards effectively anesthetize the pain of paying. "You swipe the card, and it doesn't feel like you're giving anything up to make the purchase, unlike paying cash where you have to hand over bills.”

I bolded two words in that quote—anesthetize and pain. Anesthetize means to administer an anesthetic to numb pain, like when you have surgery or when you go to the dentist. Pain, because in Lowenstein’s study, he set out to see if pain centers of the brain would activate when a person would see prices, found that insula activation discouraged spending. Here is what Lowenstein said, "We were so excited when we got the results from the first scans, and saw that the insula, a section of the brain associated with pain processing, activated when subjects saw prices that were too high.”

What does this mean? Our brain registers pain with prices and spending, and the higher the pain, the less spending we might do because of the increased insula (triggers more pain). But as Lowenstein stated, credit cards anesthetize, AKA numb the pain of paying. Interesting, right? Maybe those credit cards are costing you more than you think and you don't even know how painful it is? 

Does it cost you to play?

Debit cards are much harder to get yourself into trouble with, but tread lightly here because they can still pack a world of hurt. Debit cards are still made of plastic, and if you don’t have a budget and lack a good financial plan, you could bleed your bank account dry. Soon, your auto payments like your electric bill, cell phone, mortgage/rent, aren’t getting paid because you overspent. Now the bank that gave you that FREE checking account is charging you a crazy amount of overdraft fees. In fact, banks made more than $30 billion in overdraft fees in 2016! This is real life. I have people who join Roots of Personal Finance who were paying hundreds of dollars in overdraft fees because they didn’t have a plan for their money.

Banks do offer some tools to help you, like overdraft protection to keep you from going negative. However, you could be charged a fee for having to use it. Be aware that debit cards do come with other fees like ATM fees. If you’re not planning properly, you could be spending a good deal of money every year just getting access to your own money. Also, if you have a minimum balance requirement, overspending on a regular basis could cause you to go below the average daily balance, triggering more bank fees.

Credit cards come with a slew of fees.

  • Interest! According to, Americans are paying over $100 billion in credit card interest and fees. Even if you don’t carry a high balance, it's likely you're wasting hundreds, maybe even thousands of dollars on interest. This is a bad plan.
  • Cash advance fees. If you don’t have money in your bank account, many people resort to taking an advance on their credit card. Like debit cards and ATM fees, these fees can range from 2% to 5% of the total you take of your available credit.
  • Annual fees. Yes, some cards charge you a fee just to have their card. That seems like a good deal. Yeah, right!
  • Other fees include balance transfer fees, over-limit fees, and of course those amazing late fees when you don’t pay the bill!

Credit cards are more secure. But are they?

Some people prefer credit and debit because they are more secure than cash. And some prefer credit to debit because of fraud. It's a legitimate argument. Identity theft and financial data theft is only getting worse. The case for the credit card is you aren’t held liable for any fraudulent activity once reported, and being that it wasn’t your money that was taken in the first place, it doesn’t cause any personal financial damage. Fair enough! However, if you’re carrying a revolving balance as we talked about earlier, you are paying a significant amount of money for this so-called security. You can protect yourself using a debit card. I only use a debit card, and I have had my account stolen before, but I have things in place to protect myself, so I don’t have to play the credit card game.

  1. I have a large emergency fund. If something happens to my checking account and money is taken fraudulently with my debit card, I cancel the card and move money from my emergency fund to cover the loss until the bank replaces it within a week. It’s actually in the past only taken a few days for the money to be returned to me. “Brad, I don’t have an emergency fund!” That should be one of the first things you do to improve your financial life. You can find more about that here.
  2. I look at my account daily. Most people who are struggling with money and debt are rarely looking at their bank accounts and monitoring transactions. That’s a bad idea! Get in the habit of reviewing your bank account regularly.
  3. Set a maximum transaction/daily amount with your bank. Debit cards typically come with this as a default, but you can request to adjust it. If you don’t want to be at risk, lower it so if someone fraudulently uses your debit card, they can’t do much damage. If you have to make a big purchase, you can call and approve the purchase and have them raise the amount temporarily.
  4. I am proof! I’ve solely been using debit cards for almost nine years now. I traveled outside the country, I use my debit card for many purchases whether it be online, in-store, or at restaurants. Outside of the few occurrences when our account was compromised, I find debit cards just as secure as credit cards and I have no reason to believe otherwise.

Why you shouldn't play the credit card game.

There are two statistics I want to share. 
  • According to the U.S. Census Bureau, roughly 62.4% of American adults carry credit card debt balances.
  • According to, "Total owed by average U.S. household carrying credit card debt—$15,482. 

There you have it. The majority of people who use credit cards are losing, and on average, they are losing big time. If you're one of those people, don't feel bad. Many of you know by now, I played the credit card game and I lost too! But there is hope, and you can crush your credit card debt for good. 

If you’re in the majority, get back to basics!

You don’t have to read very far to find that many people are struggling with money and debt. The majority of people don’t have a budget or a plan for their money. They lack a basic emergency fund and a savings plan for their future, and everyday purchases. Almost eight out of 10 of them are living paycheck to paycheck. Many of them carry high amounts of debt, whether it's credit cards, auto loans, student loans, or personal loans. Many of them are just struggling to make ends meet.

If you find yourself with the majority, then I challenge you to put your plastic away and give it a break. Cash is a great tool that will help hold you accountable. Science has proven that it's painful to spend, which will likely prevent you from overspending when using cash. Cash will help you improve your decision-making and financial behaviors. We live in a world where it’s easy to swipe a card and not think twice about it. But that’s what gets us in trouble. If you used cash more, think about the money you could save. There are no interest rates or overdraft fees when you use cash. Credit and debit cards are convenient, but if you’re having financial problems and you lack good financial behaviors, these tools are likely hurting you more than they are helping.

Here's a challenge for you: try using only cash for the next month. Take out the cash you will need and have a plan for each dollar. See if it doesn’t make a difference in your spending habits.


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