Minimizing Reliance on Credit Cards

When a gas pump rejected my credit card, I assumed its card reader was broken. Later that afternoon, another store clerk returned my card unused and told me, “It may be shut down for a fraud investigation.”

She was right. For the second time in a year, a card of mine was “compromised.” Following the initial incident, I closed my second credit card account–hoping to cut my exposure in half. No such luck. Someone gained access to the remaining card number and attempted a $1,500 shopping spree.

Returning unexpectedly to a cash economy felt at first like an inconvenience. It does take more planning, but the extra effort yields dividends.

The most basic gain comes from spending less. The “biggest threat to our financial lives is probably not that thieves will get their hands on our payment card information,” financial columnist Ron Lieber writes, but that “we quietly chip away at our own net worth using credit cards too much in the first place.”

Even for those of us who pay in full each month, the mere presence of a credit card can lead to overspending. What psychologists call the “pain of payment” is more remote with credit cards. We swipe with no thought to the future, rather than painstakingly counting out bills we’ve already earned.

One study by Massachusetts Institute of Technology researchers found that purchasers were willing to pay up to 100 percent more when spending with plastic rather than cash.

The incentives offered by credit card companies–like cash back, frequent flier miles and “zero interest” (at least for a time)–help convince us that we’re saving money rather than spending more. Cardholders who succumb to these “buy more, save more” schemes (like cash-strapped students to whom the cards are heavily marketed) can end up carrying a monthly balance at staggering interest rates.

Fewer American families carry credit card debt now than did before the 2008 recession, but those who do are burdened with larger balances–an average of more than $15,000 in high-interest debt. Shedding that burden is increasingly challenging with the middle class squeezed by rising costs and stagnant pay.

Real wages after inflation, the Pew Research Center reports, have been flat or falling for decades, and the limited gains over that period have gone largely to upper-income earners.

Those who routinely pay with plastic face an added danger when it comes to food shopping. In a 2010 Journal of Consumer Research article with the irresistible subtitle “Visceral Regulation of Vices,” the authors describe how the tangible transfer of cash may help us to curb impulse purchases like sweets. Participants in the study, who shopped at different times with both cash and credit, routinely brought home more unhealthy food products when they charged their purchases.

Credit cards represent a potential hazard to consumers and a heavy burden for retailers. The processing fees charged by credit card companies–which range from 2 to 4 percent–can be a strain on small establishments like food coops and bakeries that already have a narrow profit margin. It’s quite common for these small businesses to spend upwards of $50,000 each year on credit card processing and transaction fees.

One natural foods store owner told me that for years a third of his customers paid in cash, a third by check and a third by credit card. When many more started pulling out plastic, the fees became prohibitive. To discourage credit card use among customers, his store now offers a 2 percent cash discount.

While all forms of payment involve some environmental costs, credit cards have an obvious downside. Most are still manufactured from PVC (polyvinyl chloride), one of the most toxic and least recyclable forms of plastic. When incinerated, it produces dioxin.

Billions of credit and gift cards are generated annually, and they’re increasingly short-lived. Cards that used to be replaced every two to four years now may enter the waste stream far sooner.

Since my last card was cut up and discarded, I’ve been thinking more about the role of its replacement. It may be largely a stay-at-home card, restricted to occasional online purchases.

I’d like more of my shopping to mimic the exchange that occurs at the farmers market. While I can’t always buy direct from the producer, paying in cash takes the transaction one step closer to that ideal. When I give money directly to a grower in exchange for fresh and nourishing food, I don’t focus on what I’ve spent. I feel grateful for what I’ve received. That’s a priceless exchange that I hope won’t ever be compromised.

© Marina Schauffler, 2016. All Rights Reserved. Column reprints available upon request.