Suze Orman jumps aboard the “pay with cash” bandwagon

For years now, Dave Ramsey has recommended ditching credit cards and paying with cash. (Specifically, Ramsey advocates the use of an envelope budgeting system.) In fact, this anti-credit card stance is one of the biggest problems critics have with his philosophy; they often point out that “responsible” credit card use would yield a higher credit score.

But it looks like Dave Ramsey has some new company in the Cash Only camp. According to a recent MSN Smart Spending article, money guru Suze Orman is the latest proponent of paying for purchases with cash:

On her Saturday night show on CNBC, she asked viewers to join her in a Back to Cash movement. “Let's go back to the good old days,” she said. “Let's go back to the times when you literally paid cash for everything. That's right. Cash. Stop using your credit cards altogether.”

Here's Suze's brief call-out on video courtesy of CNBC:

Why the Change of Heart for Orman?

Orman's new movement is apparently in response to the increase of aggressive tactics by the credit-card industry.

As the deadline for the new credit-card legislation draws closer, credit-card companies are looking for ways to make up for the projected loss in revenue. This includes steps like drastically increasing the interest rate on even cardholders who've always paid on time, and continuing to close accounts of select consumers with low balances or periods of inactivity.

For example, my mother has had several cards close her account after only a couple months of inactivity, despite the fact she's been a long-time member customer. Recently, I've also fielded calls from two close friends who've had rate increases without any default. (In one of these cases, my friend called for a decrease and they actually responded with an increase!)

Apparently, the changes have hit close to Orman, as well. I didn't catch her announcement over the weekend, but the same MSN Smart Spending article points out that she used her own show director's wife as an example. Citibank had recently sent her a letter raising her rate to 29.9%, despite the fact she'd never missed a payment.

Why We Chose to Live Without Credit Cards

It's been almost two years since Courtney and I made the decision to ditch our credit cards for purchases. Last December, we finally paid off and canceled the last one.

In order to make the decision, we employed the Ben Franklin method: We simply created a list of the advantages and disadvantages.

Our list of advantages for cash over credit:

Our list of disadvantages for cash over credit:

  • Less convenient than swiping
  • More work to track
  • More risk for physical loss
  • Harder to build credit history
  • Forgo reward programs
  • Select employers & insurance providers use credit scores

There may be a couple that we left off, but these were the ones that we considered for our choice. Honestly, at the time, the avoid unexpected fees and changes of services didn't carry much weight for us. Now, though, the volatility of the credit-card companies has turned it into a great side benefit.

In the end, we selected the increased consciousness in our budgeting and spending, combined with a simpler financial structure. It beat out the convenience and rewards associated with credit card use by a little bit.

The point isn't to rehash the credit card vs. cash debate. We've been there, done that. Each person's situation is different, and there are responsible users on both sides. Or as J.D. would say, do what works for you.

However, I'm interested to hear if, like Orman, recent events have changed your perspective. Have the recent strategies of the credit-card companies changed your feelings toward using credit or cash for your purchases?

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Mrs. Money
Mrs. Money
10 years ago

I like the idea of using cash only, but the truth is- if I have cash, I spend it. So I use my debit card most of the time. This is my “envelope system”: http://ultimatemoneyblog.com/using-my-envelope-system-to-budget-money

That’s what works for me! 🙂

maybebacktocash
maybebacktocash
10 years ago

I am debating going only cash as well. I’ve never paid late but all my card companies also sent notices changing the interest rates and grace periods. I shut them all down and I have just one card left (my oldest and highest limit) but even citi has sent a notice as well. They doubled my interest rate just a year ago and now they are adding another 5%, this effectively triples my original rate. Now I’m contemplating skipping credit altogether especially since I’m not really that good at keeping a zero balance. At this point I’m not all that… Read more »

Writers Coin
Writers Coin
10 years ago

Nope. Until it affects me personally I will continue to pay for everything with plastic and pay it off in full. If they institute an annual fee or something like that…then I’ll have to change the way I do my thing.

Jonasaberg
Jonasaberg
10 years ago

My bank cooperates with my insurance company so because I am a customer with both I get certain benefits, such as free internet banking and no annual fee for my VISA-card.
I just recently got a message that the terms will change but my benefits are good until the end of 2010 so I’m staying put until then.

Usiere Uko
Usiere Uko
10 years ago

Using cash reins in your spending. You only get to buy what you can afford NOW. Of course there are draw backs, credit history, security, getting your cash back in failed transactions etc. For one that wants to get back in the driver’s seat of your finances, cash only is the way to go, at least till you get your finances back in shape

gwen
gwen
10 years ago

I’ve stopped using one card and started using the other due to their practices. I’d been trying to pay it off, so I said screw Citibank and did a balance transfer on it. Now I’m just trying to pay off two cards and use one for when we need credit–hotels, cars, etc. but then we’ve saved for everything before hand and I pay it off when we get back. My check is electronically deposited, so I pay bills off that and put cash from his check into the the ATM each week. Otherwise, we use cash to save for stuff,… Read more »

Suzanne Schoeneweiss
Suzanne Schoeneweiss
10 years ago

I just got a rate increase in the mail from my preferred card from 10% to 30% despite the fact that I’ve never been late on any card, and have used this as my primary card for 15 years. My credit score is over 800. I haven’t cared before because I pay the bill off every month. But now I’m really pissed off. It feels like my bank is thanking me for my business with a slap in the face. I’m seriously considering doing more with cash. I’m not ready to go all-cash yet. I like the.purchase record, especially for.work… Read more »

Sarah
Sarah
10 years ago

We have recently moved to a cash only envelope system. Our savings didn’t seem to be growing so we knew we needed a new approach. Now we can only spend until the envelope runs out not until the account is empty. Amazingly, now there always seems to be something left to transfer to savings at the end of the month.

Deborah
Deborah
10 years ago

My rates have gone up, but I can’t tell you how much. My card gets paid off every two weeks on payday, so I never incur interest. If they started charging interest on the day I made the purchase, I’d have to rethink that. But since I don’t carry a balance long enough for them to make money off of me – and I make tons of rewards on my Amazon Visa – I’m going to stay where I am for right now.

Richard
Richard
10 years ago

I think the real benefit of using cash is only buying this you actually have the money for. That said, I think using a debit card is a good way to retain the convenience of a credit card with the good sense to not borrow against your future.

JimmyDaGeek
JimmyDaGeek
10 years ago

Since I use my credit cards as a glorified debit cards by paying the balance every month, I don’t care much about the disadvantages. I never got into the trap of using them as permanent revolving loans. I have no idea what my interest rates are. As long as I am not charged a fee for using the cards, I will continue to use them.

Gooniette
Gooniette
10 years ago

I don’t even know what the interest rate is on my credit card because I pay it off every month. It’s just a good way for me to track my spending.

sandy
sandy
10 years ago

We haven’t been hit yet with changes to our cards. We pay off in full every month. Until they do, and as long as they still offer this, we’ll get a percentage back for the girl’s education thru our Upromis card. If we have a fee to pay for it…back to the credit union card we’ve had, fee free, for 21 years.

mario g
mario g
10 years ago

I’m a Suze Orman follower. She has been a proponent of responsible credit card use. Her recent book (I got an audio version), the 2009 Action Plan, I believe she mentioned using cash and avoid using credit cards, especially if you don’t have the cash to pay it off when it becomes due. My wife and I have several credit cards but only use one on a regular basis. The “inactive” ones recently got rate increases and/or limit decreases. We were kind of miffed by this (the credit card companies are cruel, cruel beasts) but on the other hand, while… Read more »

Christy
Christy
10 years ago

Because we always pay in full every month, we also use our credit cards like glorified debit cards. I agree with others before, in saying that if the card issuers start charging fees, I’m gone.

I’ve had one card (my only card until about a year ago) since 1988. Never had a fee on it. I can imagine them changing it, given the current pirate-like climate in the credit card industry. Thankfully, I can leave at will.

Eric
Eric
10 years ago

Nope, I still like my cards.

Interest rates don’t matter when you don’t carry a balance!

2 Cents
2 Cents
10 years ago

We have actually been putting MORE on our credit card lately, and reducing the amount we take out in cash. We earn more reward points, our expenses are centralized on a single credit card, and we pay the balance in full each month. We know how much we can spend and stick to it.

I also like the convenience of credit cards for online payments. How do you book a hotel room or rent a car without a credit card?

EscapeVelocity
EscapeVelocity
10 years ago

Several years ago, my card issuer decided to switch me from Visa to MasterCard without asking, so I switched to my credit union–so far, they’ve been fine. I think the interest is 13.9% but I’ve never paid any. I’ve started using cash for groceries just to control spending in that area, and since I do a lot of cash transactions there anyway since I shop at the farmers’ market. That way there’s no record-keeping involved–I just have a separate wallet for the grocery money. I take it out two weeks at a time because I really don’t like carrying large… Read more »

Ben
Ben
10 years ago

While it’s true that most people spend more with credit cards, there are also generational and individual psychological factors at play to consider.

Personally, I find carrying currency annoying and will either spend it or leave it at home. I even used to throw away pennies.

With that said, I spend FAR less money using a debit or credit card than with cash.

Bri
Bri
10 years ago

I’ve recently taken advantage of an 18-month interest free card to buy a new laptop; I would not have been able to purchase it otherwise (I refuse to pay interest on anything). It’s costing me less than $100/month, same as cash, and knowing me I will pay it off early. I also have a 12-month interest free card that I used to transfer a small credit card balance that I wanted to stretch out when money got tighter after an illness. So for someone like me, the interest-free deals that seem to be everywhere right now have been helpful. I… Read more »

mi
mi
10 years ago

Like others Ijimmy, eric, christy) have said, I pay the balance in full every month and have no idea what my interest rates are. So what is the big deal about raising the interest rates for people like me?? As I see it, this has NO consequences for me and I couldn’t care less.

Beth
Beth
10 years ago

For me, credit cards are still the best option for booking travel online and shopping online. Since I don’t charge anything I don’t already have the money for, I don’t consider this to be much of a problem.

I’m in Canada, and I haven’t yet noticed the problems described in the States. Is anyone outside the U.S. banking system having these problems with credit card companies?

Bri
Bri
10 years ago

I should add–that probably means I’m living beyond my means, if I’m buying things I don’t have the money to front. But sometimes major life changes require a bit of financial finagling. After a marital separation I was left without a computer, and during an illness I lost about $10,000 of income. The interest free credit card let me afford a computer (which I use daily, and consider money well-spent) and the other interest-free card let me deal with the (hopefully) one-time income loss with much less anxiety by spreading out my payments with no extra cost.

Steve C
Steve C
10 years ago

How do you pay for air travel, hotels, rental cars, etc. without using credit cards?

Alexandra
Alexandra
10 years ago

Nope, I haven’t been affected at all. They can even raise my interest rates and it won’t affect me since I pay all my bills in full each month. And unlike others, the credit available to me keeps rising, without me even asking for it. The benefits are too huge to pass up. Every month I cash in my Air Miles for gift certificates for clothes and other treats – all courtesy fo the credit card company. I put everything on my credit card, so at the end of the month I can see where each and every penny has… Read more »

sashie
sashie
10 years ago

I don’t understand people who say that they spend more money using cash than using a credit and/or debit card. How can you use more cash than you take out? If you are truly disciplined about your spending (and you only take the amt of cash out that you have budgeted) how could you spend more with cash than with a credit card which gives you access to much more ‘money’ during every transaction. Either you are disciplined enough to not spend what you haven’t take out or you are not (with either cash or credit). Using a credit card… Read more »

Evan Mullins
Evan Mullins
10 years ago

I have seen rates go up, but I never purchase anything on credit unless I HAVE the money in the bank and I have never carried a balance on my card. I am contemplating switching to using debit for more purchases, I don’t like cash because it always disappears for me. I use mint.com and know that all my purchases will be tracked if I use a card. I suppose if I had credit card debt and was trying to pay that off and they increased the interest rate I’d be pissed though and I’d cancel them all as soon… Read more »

April
April
10 years ago

I use the credit card companies for airline miles. Last month, Citi raised my interest rate to 21 percent, and like many others, we’ve always paid on time and paid the balance in full. I laughed at how ridiculously high it was and felt bad for anyone carrying a balance, but I had no plans to cancel my card. We don’t pay any interest on it. Funny thing is that I had to call Citi with an unrelated question, and the rep offered to lower our interest rate. I didn’t even ask about it. Weird, huh? If someone does not… Read more »

Seth @ Boy Meets Food
Seth @ Boy Meets Food
10 years ago

Same here. I have not changed my views toward credit cards. I still use them for every single purchase I make, including paying utilities. I pay my bill in full every month, so I can reap the benefits of the rewards programs. In order to be able to pay the bill in full every month, I have to know that I have the cash available for every purchase, and my wife and I are pretty frugal, so credit cards still work fine for us. Honestly, I don’t really care what they might raise my rate to, because I will never… Read more »

Cal
Cal
10 years ago

been trying to use various methods for about 2yrs now and nothing’s sticking. i love the idea of the budget method,.. but the overhead required to keep the money separate and track it is just too much. the envelope system needs to go electronic, and i was going to try and write an iphone widget to do it (and probably fail). then i found these guys who have implemented it for android. check them out http://www.eebacanhelp.com/login.php. it’s still only in beta. but it looks perfectly minimal – just the functionality you need and nothing more.

Katie
Katie
10 years ago

I understand what a lot of people are saying about how the rate increases don’t affect them because they pay off their balances regularly. But for a lot of people, including me, the way that credit cards are raising interest rates and canceling cards on “good” customers is insulting. The companies are making money every time you use your card by charging a percentage to merchants for the “privilege” of taking credit cards. And on top of that, they are fleecing their customers with interest rates. I see it as: if they aren’t going to play nice, I’m going to… Read more »

Seamus
Seamus
10 years ago

I almost exclusively use my debit card, only using a CC when I do things online, but I haven’t experienced anything in regards to my rate. Actually, I called a month or two ago and got my rate reduced from 12.99% to 8.99%. Like most on here, the rate doesn’t matter much to me, as I pay them off each month, but I still like the satisfaction of having them reduce the rate. Has anyone else not experienced this backlash from the CC companies? I do transactions online too often to cancel my CC’s. Plus much easier to refuse to… Read more »

E.D.
E.D.
10 years ago

We’re not changing our habits. DH and I each have a mileage rewards card and we have one joint credit account. None of our interest rates have been raised – not that it matters because we haven’t carried a balance in about eight years.

We do pay a small annual fee for one of the mileage cards, but it is worth it not to have to purchase plane tickets for our vacation travel.

If the joint account started charging an annual fee, we would dump it.

Chetan
Chetan
10 years ago

Pretty much the same here. Have Credit cards, pay full every month = zero interest.

Leslie
Leslie
10 years ago

Sashie – Not all of us look at credit cards based on the credit limits. I don’t honestly know what my credit limits are exactly because I don’t look at it as money I can spend. The only money I can spend is what I have in my bank account. So, I only put things on the credit card that I know I could pay cash for right then but for various reasons I don’t want to or can’t (internet purchase, travel reservations etc.). So, people that look at credit cards this way won’t necessarily spend more by putting it… Read more »

Kevin
Kevin
10 years ago

If you pay your card off every month, then the rate is irrelevant. My card’s rate is 19.9%, and it has been that way ever since I got it. My credit score is over 800. That’s just the way it is in Canada for no-annual-fee cards. I couldn’t care less what the rate is, because I pay it off every month.

Now, if they started charging me an annual fee, that’d be a different story, and I’d cancel the card and look for another no-annual-fee alternative.

Sam
Sam
10 years ago

We have a credit card that we use to book travel or if we are looking for extra protection on a purchase. We probably use our CC about 4 times a year and we have already saved up the cash for the travel or purchase. Also, the CC is not carried by either of us (its in a drawer at my office). We tried the cash route when we originally started Ramsey’s TMM but we found cash too hard to keep track off, and it was exhausting for me to enter all that data in Quicken. So 90% of the… Read more »

Isela
Isela
10 years ago

I believe that Suze Orman is giving that advice because is the easiest thing consumers can follow.

I do not believe is because credit cards are that bad, is because consumers can not deal with credit cards, period. It seems that budgeting and then meeting deadlines to pay credit cards is a task that it has proven too difficult for some, that paying for cash is their only option.

I love Suze Orman, but I will still use my credit card just because I can travel for free…and I haven’t paid a penny of interest in the past two years.

Dustin | Engaged Marriage
Dustin | Engaged Marriage
10 years ago

The recent, uber-scummy credit card changes have not changed the way we use cards. We have one credit card that we use for online transactions and gas purchases (5% cash back there), and we use debit cards for everything else. This works for us, and I’ve never paid a dime to a credit card company (in interest or fees).

Caitlin
Caitlin
10 years ago

No way. I’m not able to track things spent with cash. Receipts get lost, and tracking it is far too boring for me to stick with it. 😛 I use my debit card nearly exclusively. As I understand it, debit works differently in Canada, and I like our system here. I generally only use my CC for online shopping, booking hotels, or for places like convention Dealers Rooms or art/craft shows. I think perhaps my mindset might be different if I was in the USA and faced the same type of CC funkiness that you guys are experiencing. But since… Read more »

Lesley
Lesley
10 years ago

We went to cash for some things a few years ago, but do a virtual envelope system for others that are spent less frequently and can tend to add up to a fair bit of money (clothing being the biggest), keeping the money in a high-interest savings account. For these, the credit cards are very handy, since it means I don’t have to transfer the funds 3 business days before I want to go shopping. I check the balance of the “envelope” before I go, pay by credit card, and then transfer the correct amount when I get home. Basically… Read more »

Four Pillars
Four Pillars
10 years ago

So should companies not be allowed to change their rates/prices ever? Are they evil they do?

I don’t get it.

Bradley
Bradley
10 years ago

for once suze orman actually said something intelligent! i ditched my credit cards in march of 08. it has been liberating to say the least. i am a debit card person. mainly because my bank is small and is a pain in the butt to get to for cash. but also for the credit card like convenience. what the credit card companies chose to do or not do is no concern to me anymore, and if people don’t like what they are doing… ditch the cards. how else do you show a company that you don’t like their tactics? added… Read more »

Anne KD
Anne KD
10 years ago

I felt pretty insulted when Citi sent me a notice a little while back to tell me the interest rate on my card went up to something like 24%. My credit score is above 800, I’ve had the card since college freshman year (over 20 years ago) and don’t carry a balance. On the other hand, I don’t carry a balance (yep, know I’m repeating myself) and the card gives me cash back on things like groceries. So, I’m keeping the card and smiling every time I get a reward check back. I use the card for groceries, mainly, and… Read more »

Little House
Little House
10 years ago

I just wrote a post on this the other day. I understand Suze Orman’s new strategy, credit card companies are doing some really shady things right now their customers. Also, for people who are having trouble staying within their budgets, having a cash only budget makes it easier to control spending. However, using credit cards responsibly does build credit. For instance, one of the reasons my husband and I use our credits cards lightly is that we are trying to repair our credit. We have paid off all of our revolving credit cards and use them every few months for… Read more »

Lisa
Lisa
10 years ago

I’ve been living mostly off of my savings for the past year after losing the majority of my income when the economy crashed. I’ve always lived within my means without any debt, so I have(had) a large emergency fund. So, I’ve pared my expenses down to the very minimum and am living on a very strict budget. However, I still like using my credit cards for the Rewards. I have a gas card, and I love getting $25 gift cards on occasion from that. It is a little bit of extra help that I appreciate. I do get the point… Read more »

J.D.
J.D.
10 years ago

I’ll chime in to say that for the past 2-1/2 years, I’ve been one of those credit card users that has no idea what his credit limit is or what his interest rate is. I really don’t. In my mind, neither matter. I use the credit card like I use a debit card. And yes, I know that plastic tends to make people spend more (whether that’s credit or debit), but I do my best to spend consciously. That said, I have actually been contemplating a return to cash/debit-only. Right now the thing that holds me back is a knowledge… Read more »

Tammy
Tammy
10 years ago

I wish I could say I could get rid of my cards, but I really don’t think it would work for our family, at least for the time being. We use our cash back Discover to get gas (though they’ve recently slashed the rewards), but I really need to focus on using it ONLY for gas…not little extras. I should use my debit card for that. Shame on me! This is a card I should really focus on eliminating. Then we have the ’emergency’ card…which unfortunately got used for car repairs. We have the cash in savings to pay for… Read more »

Russ
Russ
10 years ago

@sashie “If you take out $200 for the week, or budget $200 to be spent from your debit or credit card. Which one is truly more likely not to work?” I’m one of those people who tends to spend more if I use cash. The point you’re missing is that we tend not to ‘budget’ an amount to spend on cards. If I have $200 in my wallet, I’m likely to spend it just because it’s there. If I’m only carrying my credit card, I probably won’t spend anywhere near that much. For whatever reason, a card doesn’t tempt me… Read more »

Sandy L
Sandy L
10 years ago

My husband and I had Citibank cards which we canceled and changed to Capital One. It was ~1.5 years ago before all this fee + rate nonesense started. We switched because we both noticed that several times a year, we would get charged a fee or interest in error that would require a call to fix. It happened to both of us, on different accounts, at different times and always in the company’s favor. After using them for over 10 years, we both closed our accounts. We’ve been happy with the switch to Capital One. No rate increases yet, and… Read more »

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