There have been many different studies that show that consumers spend more money when they use credit card. There are a number different reasons for this. If you can’t avoid using credit cards, or even debit cards (which also seem to make people spend more) then it is best to understand why you are likely to spend more so you can make good choices and avoid being another statistic. Of course, if you can get away with only using cash, then you’ll be in great shape!
Tax States
Some states charge sales tax and some do not. It used to be that if your own state charges sales tax and you live near another state that does not, you could make your purchases in the tax free state. New tax laws in some of these sales tax states now require you to report those purchases you made with a credit card and pay tax on them anyway. This also goes for any purchases that you made online.
Negotiating with Cash
Because credit card companies charge fees, you may be able to get a better deal on something if you offer to pay cash. There tends to be more wiggle room with cash. This is especially true for any large purchases that normally require financing. Pay with a credit card or financing, and you may have work harder to get a better deal.
Cash is More Real
Now we get into the psychology of cash. Cash somehow feels more real, and we tend to think twice before we part with it. It is very physical, and we can literally see it slipping through our fingers when we pay. Plus cash seems limited, while credit cards seem limitless.
Establishing a cash envelope system is one way to start using more cash and spending less money.
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