Why paying with cash hurts (and why it should)

These days, my monthly budget is on the boring side. Aside from our regular spending, I’ve got a mortgage payment to fork over, groceries to buy, and utility bills to pay. Throw in some payments to my kids’ 529 plans and my SEP-IRA and I’m basically done for the month. After all of the bills are paid, the key for us is making sure that the rest gets transferred into savings so that it doesn’t accidentally get spent.

But it wasn’t always this way, and I was reminded of that fact the other day when I was flipping through one of my old notebooks. That’s when I found our monthly zero-sum budget for August of 2010, and that’s when our old lifestyle smacked me right in the face. Want to know how many bills I paid in that month? Twenty-four.

Car payments, credit card bills, and personal loans, oh my. It’s no wonder we weren’t saving anything. Fortunately, it was easy to look at that old monthly budget and pinpoint the exact cause of our unfortunate situation. The problem: We financed everything and never, ever paid cash.

Low Monthly Payments for Life

Fact: You can have nearly anything you want.

I can too. We all can. Cars. Clothes. Diamonds. Trips to Hawaii. Almost any earthly possession you’ve ever laid your eyes on can be yours.

Well, kind of.

If you’re willing to make monthly payments for as long as it takes, whether it’s five years, ten, or twenty, then it can be yours. Does that sound tempting? Probably not.

But that’s exactly what we do. In the fourth quarter of 2013, U.S household debt swelled to a monstrous $11.52 trillion. Of course, some of the money was borrowed to purchase homes, pay for college, or start a business. A certain percentage can also be blamed on things like medical bills, unemployment, and emergencies. But the rest? My guess is boats, iPads, and designer shoes. Oh, and let’s not forget furniture, date nights, and family dinners at the Olive Garden. The rest is anyone’s guess.

Stop the Cycle

We all know how easy it is to trade your car in for another. You walk into the dealership, they look your trade over, and you pick out another, nicer car. Your new car payment could even be the same as it was before. Hell, it might even go down. But are you really doing yourself a favor by trading up without the cash in hand? The answer is probably no.

I’ve been there. My husband and I traded cars around more times than I could count, mostly just because we would. Looking back, I think we were just bored. And sadly, we weren’t able to see that there were real costs associated with constantly trading up. We only focused on the monthly payment, and never had the goal of actually paying them off.

Fortunately, we finally made the decision to change our lifestyle sometime around the time that that budget was made. And once we stopped the madness, we made one huge change that put an end to the cycle once and for all. We began paying cash for anything and everything, and we refused to add to the pile by financing things we couldn’t afford.

Turning an Awkward Moment Into a Learning Experience

In the meantime, we got serious about getting out of debt. Fortunately, it didn’t take long to knock out everything but the two biggest sums we owed — the loan for my minivan and my husband’s student loans. I still remember the day we paid both of them off once and for all. The total was well over $10,000 and it literally pained me to hit the keys that would initiate the automatic bank transfer. I mean, it hurt. That money was mine and was earned with my own blood, sweat, and tears. And if you subscribe to the theories espoused in books like Your Money or Your Life, that money was literally my life force, and it was getting sucked away by a stupid van that I overpaid for in the first place.

I still have that van. Want to know why? Because it’s paid off, as is everything else I own. And now I’m literally gonna drive that van until the wheels fall off, or until the engine finally gives up or explodes out of sheer exhaustion at maybe 500,000 miles. (A girl can dream, right?)

I learned something from our adventures in debt and from that final $10,000 payment — most notably that I never, ever want to go down that road again. Parting with that much money at once was painful. It burned. It made me uncomfortable. And now, years later, I’m convinced that that’s exactly how it should feel.

Pay Cash and Feel the Burn

Since then, we’ve paid for everything with cash including a car for my husband, furniture, home remodeling projects, and more. And even though it has sometimes been painful, our refusal to finance anything has been a game-changer for our financial future. Here’s why:

  • Paying in cash forces you to consider the real purchase price – No matter what you’re buying, the fact that you’re paying in cash turns it into an entirely different experience. That’s because you have no choice but to consider how much money you’re paying overall, and not just what you’ll have to pay on a monthly or yearly basis.
  • Paying in cash might help you spend less – When you force yourself to pay in cash, big ticket items start to lose their appeal. Try walking into a dealership with the intention of paying $15,000 or $20,000 for a newer car. All of a sudden, the prospect of keeping your old paid-off junker becomes an incredibly attractive option. Am I wrong?
  • Paying in cash keeps you out of debt – The best thing about refusing to finance things is that it keeps you out of debt in the first place. We all know what a slippery slope that can be. There are so many benefits to being debt-free, including the option to save more of your income, less stress, and of course, the feeling of not really being beholden to anyone. It’s a freeing feeling, and it’s one that I will never, ever surrender without a fight.

If you’re in debt and are ready to make a change, start by creating a debt snowball. Conquer each one of your debts one by one by one, and refuse to give up until you’re finally debt-free. Adopt the mindset that if you can’t afford to pay cash for something, then you can’t afford it. Period. Only then will you free yourself from the chains that bind you. Only then will experience the feeling of owing nothing to anyone and the unexplainable sense of freedom that comes with it.

Once you’ve done what you set out to do, force yourself onto a cash-only diet. Cut up your credit cards if you have to — and learn to pay for everything with the cash you’ve stashed away in your own accounts, not with other people’s money. Know that it may make you feel uncomfortable, and rest assured that it’s supposed to. Paying cash hurts, and it should hurt.

That burn you feel? It’s simply the price you pay for your freedom, and it’s totally worth it.
How do you feel about paying cash? Is it painful? Do you think it should be?

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There are 59 comments to "Why paying with cash hurts (and why it should)".

  1. Dave @ The New York Budget says 12 March 2014 at 04:30

    I have been debt averse for as long as I can remember. Even now, as I start looking at real estate investing, the idea of a mortgage pains me, even though, logically, I know that I should look at it as “leverage” and not necessarily straight up debt.

    Don’t pay for things you can’t afford – it seems simple, but people struggle with it. I like the idea of the cash only diet.

  2. Marsha says 12 March 2014 at 04:56

    I teach a financial literacy course to high school students, and one of my rants is how our modern culture has twisted the meaning of the word “afford.” So many people think that “afford” means “I can cover the monthly payment, as long as I don’t lose my job or have a medical emergency, or…” No, “afford” should mean “I can pay cash without putting myself in any financial jeopardy.”

    • Beth says 12 March 2014 at 05:03

      Love it! Just out of curiosity, what’s your definition of “afford” when it comes to a mortgage?

      I found a huge difference between what the bank says I can “afford” and what the Canadian Mortgage and Housing Corporation’s online tool says I can afford (purchase a home that’s no more than 3x your annual salary). Obviously, the bank has more to gain if I go for a higher mortgage, and the CMHC — which issues mortgage insurance — has more to gain if people don’t default on a too-high mortgage.

      • Marsha says 12 March 2014 at 07:38

        At the very minimum, I wouldn’t buy a house without at least 20% down, or whatever amount is needed to avoid mortgage insurance. I’d also have a year’s expenses saved just in case.

        Don’t listen to the bank about what you can “afford.” When we were last shopping for a house (18 years ago), we were approved for a mortgage that was $100,000 more than what we needed for the house we ended up buying. We bought a less expensive house (still plenty nice though) because we like having some money in our budget for things other than housing.

        • Karen says 12 March 2014 at 10:08

          This reminds me of when my husband and I were first married 22 years ago. We looked at building a new house (in the end said decided against it) and when we were told what we qualified for (“could afford”) we were told in the range of $350,000-375,000!!! Twenty years ago! He was a police officer at the time, I am a nurse…..we just looked at each other and laughed – a lot!

    • MoneyAhoy says 12 March 2014 at 07:24


      Exactly! If only there were more of you out there teaching the kids what they need to know to keep out of trouble. I think it’s awesome that you’ve devoted your time to this type of thing!!

  3. Beth says 12 March 2014 at 04:58

    I think understanding the overall cost of something is important! I’ve known too many people who upgrade their homes or cars and think it’s a great deal because the monthly payment is the same. Not only are they in debt longer, but their monthly expenses go up as well.

    I’ll be paying for my next car with cash and I cringe at spending that much money all at once. Keeps me happy with my old car!

    • Lisa Aberle says 12 March 2014 at 07:16

      I hear you on the cars! Since we expecting child #3 to make its arrival in three months, many people have asked us if we’re going to upgrade to a minivan or something larger than our car.
      While I’m sure something larger would be more convenient than a car, we can still fit all 5 of us in our car. Besides, I would rather spend our money somewhere else! We’ll see how long the ol’ car lasts.

      • Jane says 12 March 2014 at 10:45

        What’s up with people thinking you have to have a minivan if you have more than two (and sometimes even more than one) kid? I’m expecting my third in a few weeks, and I had a close friend actually tell me I am stupid for not buying a minivan. We are buying a new (to us) car, because we have one knocking on death’s door. But guess what we’re buying? An Accord or a Camry. You can most certainly fit three car seats across them – you just have to buy more expensive and narrower seats. But it’s still cheaper in the long run than buying a bigger and less fuel efficient car.

        • Laura says 12 March 2014 at 11:42

          Great Choice I have an 09 Accord and it has PLENTY of room for 3 car seats and has tons of trunk space. My sister-in-law has a 09 Camry and same thing plenty of room in the back seat and trunk space. Yay for you for not going with the crowds I too am not too fond of mini-vans plus the cars do give you a little better gas mileage and I find they are easier to park and everything in general as opposed to a larger sized mini van.

      • Sarah @ Little Bus on the Prairie says 12 March 2014 at 11:52

        We fit two Britax and a Dyano in the back of our Murano. It’s tight and a hassle getting them in and out (the seats, not the kids), but since the older two can buckle themselves, totally not as big of a deal as some people make it seem.

  4. Tre says 12 March 2014 at 05:06

    Paying cash is so painful! We’ve been saving up for a major purchase. It’s exciting to see our bank balance grow. It’s going to be hard to give it all away for one purchase.

  5. Laraba says 12 March 2014 at 05:58

    Like Dave (Comment 1), I have always been debt averse. I don’t feel pain when I fork over cash to buy something, because I’ve always operated that way except for a mortgage and 2 cars. The 2nd car was a new minivan 14 years ago and we financed part of it while we waited for another car to sell. It only took 2 months and I was so glad to have it paid off. That minivan is still chugging along and we are planning to drive it into the ground.
    What I can’t figure out is how is how best to teach my “spender” kid — because for me, living frugally and avoiding debt and saving is natural. For her, not so much. We talk about money a lot and she is learning, but I am guessing she’ll have to make a few mistakes along the way. I hope, eventually, she’ll really grasp the idea that it is better to delay gratification than to buy now and pay (and pay and pay) later.

    • Sharon says 12 March 2014 at 14:35

      My daughter was a spender too. She complained about being given her lunch money every day, along with her clothes budget, etc. So we figured out a monthly amount and she got that on the first of the month. With all of the money in hand, she freely spent and ran out of lunch money after the first week. When she had to take her lunch to school (not cool for a girl in high school), she quickly learned how to budget the money better. You have to let your kids learn from their mistakes because the lesson is learned much more quickly than any amount of talking will do

  6. M says 12 March 2014 at 06:10

    Holly, good changes in your life! I understand the debt load in the US seems large but–argh—it’s atrocious in here in Canada.

  7. Shannon @ Financially Blonde says 12 March 2014 at 06:10

    When I have clients who have spending problems, I put them on the “cash diet.” And they whine and complain that they are losing credit card points, and I tell them that when they can prove that they are responsible enough, then they can get the credit card back. Paying with cash can be painful, but it is a great tool in getting financially healthy.

  8. Mortgage Free Mike says 12 March 2014 at 06:19

    Judging by my screen name, of course I don’t like debt. I believe in paying in things for full, but I do not use cash. I use credit cards for everything and pay off the balances at the end of the month. Living in a major U.S. city, the thought of walking around with a wad of cash doesn’t sit well with me. Most of the time I carry about $5 cash in my wallet.

    • Carla says 12 March 2014 at 08:31

      I feel the same way about walking around with cash in my wallet, especially when I’m alone. I tend to spend less when I have credit cards than cash. Not having so much cash on my person is a protection financially for me too. I’m tempted to spend less.

    • Mrs PoP says 12 March 2014 at 08:48

      From some of Holly’s posts on traveling using miles and credit card rewards, I’m pretty sure she equates “pay with cash” with “pay with a credit card that you know for certain you will pay off before any interest accrues”.

    • Kathy says 12 March 2014 at 09:04

      I am like you with regards to paying using my credit card and then clearing the sum at the end of the month. However, for me the reason of using a credit card is different from yours. I use it to gain points by which I can buy plane tickets. I hate debt!

    • Lis says 12 March 2014 at 13:40

      I agree. I feel like I’m financially responsible enough to pay for everything on my credit cards (two of them – one for good grocery rewards and one for everything else), but they’re paid in full every month. Proud to say I’ve never paid interest on any bill, other than my student loans.

  9. SouthboundSavers says 12 March 2014 at 06:33

    I agreed with everything until you said “Cut up your credit cards if you have to”. I would say, avoid being averse to credit -when it serves you- if you can. For big ticket items (cars etc) of course cash is king, and I agree completely with that. It may hurt to part with a lot of money at once (buy a cheaper car then!), but it hurts even more having to pay for it over YEARS.

    But I’m of the opinion that you should use your credit cards (for mostly smaller purchases) as much as you can, but treat it like cash. What I mean to say is, pay off your credit card bill at once, don’t even think of letting it accumulate, it’s simply a cash alternative, except that you can get a lot of rewards for using it(cashback, bonuses)!

    • Holly@ClubThrifty says 12 March 2014 at 07:46

      Key Words: “if you have to”

      Not everyone can use credit cards like cash and pay them off every month. For many, it’s a slippery slope that is best avoided altogether.

  10. Kerrie says 12 March 2014 at 06:39

    You are so right! For years my husband and I have lived in the fantasy world of “If we can afford the monthly payment, we must be able to afford it!” Then we hit on Dave Ramsey and our lives completely changed. One of the first things we did was pay off a couple of big things all at once, and it did indeed pack a punch to the gut. Somehow, making those minimum payments didn’t hurt, but sending a check for the whole shebang was quite the ouchie. The psychology of that is very interesting. Now that we’re in snowball mode (we had enough savings to pay off about a third of our debt and are now working on the rest), scraping and saving to send every extra dime to debt payoff makes you realize JUST HOW MUCH everything costs. We wouldn’t have financed half (or more!) of the things we did had we considered overall cost rather than monthly obligation. Our way of thinking on that has completely changed and we’ll never go back. Great post!

  11. lmoot says 12 March 2014 at 06:42

    See, I have the exact opposite mind-set. I have always tried to do everything I could to funnel everything through the credit filter, and only use cash to pay off the cards. If there were an easy (and free) way to pay the mortgage with a cc, I would. Besides the rewards and tracking ability (which yes, I know are also available with debit cards), I like that I have time and room to move stuff around in my budget. I feel like I am getting a glimpse of the future with the 30-60 day float I get when I use a cc. That’s helpful to me, especially since I have my savings and checking in different accounts, with a 2-3 day transfer wait.

    I’m also a huge proponent of 0% financing IF you have the discipline to save enough to pay it off by the offer term date, and the responsibility to not be late on the minimum. 0% financing offers a free way to quickly build your credit score without having to pay interest. In fact 0% financing allows you to earn interest on the cash as you save it…or even better if you have it and are already earning interest on the full amount. I just paid off a $5000 cc debt this month, will pay off an additional $1500 w/in the next 2 months, and will pay off $6000 in Jan 2015 (2 yrs interest-free loan); all interest-free. Not to say it’s a hassle though, especially when it comes to creating a budget, and having to be extra careful as to not incur the wrath of retro-interest from date of purchase. I’ve been making the minimum on all of these debts for a total of about $150 per month so even though it all goes to principle, it will be wonderful to have that extra money back in my budget.

    The ideal transaction of purchasing my next car (hopefully not for another 10 yrs) would probably go something like this:

    1) Put the max amount the dealer will allow on a cc, for my down payment (usually $5000)
    2) Finance the rest through a 0% financing offer (typically offered for new cars, but also on used cars up to 3 yrs old with a credit score of 770 and above)
    3) Pay off the 5k when next cc bill is due (after letting it sit in a high-interest bearing account for nearly 2 months)
    4) Earn $5000 worth of miles or cash-back points
    5) Pay the minimum each month and continue to earn interest, even invest on the balance owed until the end of the offer.

    If I had to guess my score is in the low 800s at the moment (the last time I checked was almost 2 yrs ago and it was in the mid 700’s, and I’ve raised limits and accrued then paid off large debts since then, during remodeling of my house). Aside from a 9 month car loan (which I still cringe about) and my mortgage, I’ve never paid any other cent of interest before. I owe it mostly to the 6mo-2yr interest-free loans, and using and paying off my cc each and every month. The only thing I don’t like about cc’s is the effect that they have on independent businesses (that’s the only place I try to use cash, when I have it), and the economy. But I can’t fix the economical impact. Credit cards are a part of our lives now and they are here to stay, so this is where I apply the “if you can’t beat em, beat em at their own game” mentality.

    • PawPrint says 12 March 2014 at 09:10

      While I also do this much of the time, I’m curious about the “high-interest bearing account.” Where are you finding this kind of account? My highest-interest bearing account is my checking, and it’s only 1.57% up to $10K, but you have to jump through some hoops to get that.

      • Julie says 12 March 2014 at 11:13

        As relates to financing the car on a zero interest loan, we have found that the best deals come when you pay cash. In addition, purchasing a new car at a dealer isn’t particularly frugal in the first place as we all know how much the value declines when you drive it off the lot. Not sure if the 5,000 points (worth $50.00) is worth it.

        • lmoot says 12 March 2014 at 16:35

          moot says:
          12 March 2014 at 4:33 pm

          I think that the idea that cash gets you better deals (at least when it comes to mainstream dealers) is a myth. I’ve found the opposite to be true. Most dealerships are sad if you pay cash for a car, and they’re not going to give a deal on top of that because you’re losing them money by not financing and paying interest, or in the case of 0% financing you’re not letting them get their referral credit through the lending bank. When I paid cash for my very first car, I didn’t know it at the time but the dealer assumed I would be financing and didn’t even bother to ask me until right before I was ready to sign the paperwork. When I told him I would be writing a check for the full amount his face dropped and his demeanor changed. He acted like he couldn’t wait to get me out of there.

          Traditional dealerships could care less about your cash because they get paid up front through a 3rd party vendor (the bank that they use to write your loan). The bank/ dealer is more than happy to write up a 0% loan offer if you quality, b/f their expectation as that they WILL make money off of you when you can’t pay it off in time. Also, you do not (and should not) disclose how you intent to pay for the car. Be discreet, or if asked directly, say you’re not sure until you have all the numbers in front of you.

          It’s not like when you pay cash for a house, you can save on banking and broker fees, which the savings can be split with the seller. And if an individual is selling a car they may be more comfortable with cash up front. Dealerships get 0 benefit of you paying cash. Unless it’s a dealer financing deal (which usually only kicks in if you can’t qualify for a traditional loan through a bank), they get paid in full before the ink dries on your signature.

        • lmoot says 13 March 2014 at 01:04

          Oh, and I agree with you about buying the new car. Which is why I will never buy a new car. Dealerships also sell certified used cars of multiple makes and models. When I’ve “made it” will probably upgrade to buying my cars at 3 yrs used instead of 7 years used.

      • lmoot says 12 March 2014 at 16:29

        Meh, I was speaking in terms of relativity. What used to be high doesn’t help us any now. The 0.95% interest I earn in my online savings account is much better than the .001% interest my B&M bank pays to my checking account. Almost 1000x better…literally. That’s almost as high as the going rate for current 1 yr CDs. It’s still terrible though, I admit.

    • Isitaneedorawant says 12 March 2014 at 10:09

      So here’s my story about 0% interest.
      After our paid for van gave up the ghost at 13 plus years. I went to purchase a new van. I had the cash in the bank, worked a deal and paid for it out right think yeah got the van that works for our family.
      I had every intention of maintaining it and driving it also for 13 plus years.
      Van was in an accident 28 months after I purchased it.Van was totalled and written off, lucky to be alive!
      I had insurance that if an accident happened with in the first two years I would receive the amount I had paid for that vehicle. Yes, passed it by 4 months.
      I ate the depreciation ( 20,000). I purchased another vehicle with the insurance claim reimbursement.
      What people seem to forget is that life happens. I had the cash, I thought this van would last as long as the first one. It didn’t, this is how people get upside down on loans.
      If I had any sort of financing arrangement other than cash it would have still had to be paid.

  12. SavvyFinancialLatina says 12 March 2014 at 06:56

    When we were buying our house, our realtor kept referring to how our monthly mortgage payment wouldn’t change very much if we paid an extra $5K. The banks kept telling us the monthly payment wouldn’t change very much if the interest rate increased by x points. But it does! We should have tied down our interest rate one day earlier, but instead we were afraid and waited. Difference in totally payment? $1,000. That’s real money! If you actually look at how much you’ll be paying over a period of time instead of one transaction, you suddenly see the huge difference.

  13. Nick says 12 March 2014 at 07:09

    I hate debt and always pay in cash. Being in debt for me is being in someones pocket. It just does not make sense.

  14. Ramblin' Ma'am says 12 March 2014 at 07:37

    Normally I avoid debt. I use credit cards but don’t carry a balance. But I bought an iPhone in November (my old phone died), and I had the option of paying cash, or paying it off interest-free over 24 months. I was totally planning on paying cash (“I’m not the type of person who finances a *phone*, for goodness’ sake,” I told myself). But when it came to actually forking over $650 in cash, I couldn’t do it. Holly is right–it was too painful!

    So, now I’m paying $27 a month for the next two years. At any time if I want to pay it off, I can. Haven’t decided yet, but having that monthly payment is a strange feeling.

    (If anyone is wondering why the phone was so expensive–my carrier is T-Mobile. Their monthly rates are lower than most carriers, but in exchange, you don’t get a discount on the phones.)

    • Ely says 12 March 2014 at 08:37

      The key phrase is ‘interest-free.’ We also have t-mobile, and the question came up when we upgraded to smart phones. You can get the discounted phone + higher monthly rate if you want it – at least you could then – or you could pay off the phone slowly like you did. (And we did, ultimately.) I can see the benefit of the discounted phone if you change phones often; the monthly fee will never be more than you would be paying for the phone anyway. But when you keep your phone forever, like I do, then the lower bill makes way more sense.

      • Ramblin' Ma'am says 12 March 2014 at 09:01

        Yep, that’s how I am too. I basically run my phones into the ground, so it made sense. This is the first time I’ve had a “hot” new phone–I had a flip phone until 2011. I’m enjoying it while it lasts. In a couple years, everyone else will have the iPhone 7 and I’ll still have this 5s.

  15. Tina says 12 March 2014 at 08:07

    We too were like you. Bought new cars every couple years until we realized how much we spent every month on cars. All of our cars are paid off(last payment Oct 2013), in fact got one car from bartering and it works perfectly! We promised to use them until we couldn’t anymore too. We have 3 cars(have two teenage drivers) and pay less for them than we we had 1 car. Insurance is higher but that is expected.

    We now split the money we had on a car payment into ER savings, Vac savings, Car savings and into kids 529 plans. That way if one of the cars die, we have something for a down payment.

  16. Sarah @ Little Bus on the Prairie says 12 March 2014 at 08:53

    It’s seriously unfortunate that so many of us don’t realize the consequences of debt until we’re up to our eyeballs in it. My husband and I have paid off of $20k in the past four years and it’s been painful at times, but I’m glad we learned the lesson early on in our marriage so we can have so many years ahead of us of debt-free living.

  17. Alea says 12 March 2014 at 09:15

    Awesome article, always a good reminder that “Cash is King”. I live by one rule these days: “If I can’t afford to pay for this in cash, I can’t afford it”. And by cash, I mean no monthly payments. I pay via credit card, but I know when the bill comes due, it will be paid in full. If I can’t pay for the item in full, then I simply wait and save until I have the money.

    It always amazes me that people are willing to go to a Rent A Center store, and pay through the nose, because they never bother to add up the real price of the item, they have to have it now, they can afford the by-weekly payments (no, they can’t) but never try to save for the item in the first place. It’s how you get caught in this quagmire, and can’t escape the vicious cyle of paying in perpertuity.

  18. Tyler Karaszewski says 12 March 2014 at 09:49

    I have a financed boat. And I gave them a check for $12,000 of money that “was earned with my own blood, sweat, and tears” as the down payment when I bought it. It didn’t hurt, because I wanted the boat. Would it have been cheaper to pay cash for the boat in the long run? Sure. It would be a *lot* cheaper to not have a boat at all. There are lots of things that would make life cheaper.

    But there is an opportunity cost to avoiding debt, as well. If I had waited 3-5 years and paid cash for the boat, then I would have missed out on 3-5 years of sailing on it, in exchange for some extra money that I spend on interest while I pay it off. I know the personal finance community thinks this is foolish to the extreme, but frankly, when I look at that community I see a lot of people that aren’t leading what I’d call particularly exciting lives. There really is more to life than the size of your retirement account.

    This isn’t meant to be justification for any ridiculous spending that anyone wants to do. The only other debt I have besides the boat payment is my mortgage. We all have to look at our own situations and determine what is responsible in them. Some debts are riskier than others. Credit card debt to finance bar tabs is just money gone, for a good time, sure, but you’re never going to get it back. At least if I decide I’m tired of the boat or need the money, I can sell the boat and get most of the money back. And then with something like property, you can sell it and likely get *more* than you paid for it. There are different levels of risk here, and it’s worth noting that — all debts are not equivalent.

    • nicoleandmaggie says 12 March 2014 at 10:24

      Yeah, it’s really too bad that people can’t rent boats. (And thank goodness for statutes of limitations on debt collection.)

      Not to say that it doesn’t sometimes make sense to buy on credit instead of rent if the interest rate is good enough etc. etc. etc., but this false dichotomy of people who are responsible with their finances never having any fun is ridiculous. There’s plenty of fun without financing things we can’t afford, and not financing things with high interest rates means it’s easier to afford whatever we want later.

      So, yes, the terms of the debt and the type of expenditure/asset are important (though boats, to my knowledge, do not appreciate, violating the “don’t finance a depreciating asset” heuristic), but that doesn’t mean that someone who makes the choice to occasionally rent a boat until they can afford one in cash is some sort of a kill-joy.

      • Tyler Karaszewski says 12 March 2014 at 11:12

        You are not a kill-joy for renting a boat. You are a kill-joy for telling me that *I* shouldn’t finance a boat because then I’m irresponsible and really I should just do free things for fun like hike and get books from the library, because nothing else is frugal enough. And I did not say that *you* did this, I just said I see it a lot on sites similar this one.

        And no, boats are not a good investment. They depreciate. They do not depreciate nearly as fast as some other things you could spend your money on, like the blogger favorite of travel. Airline tickets depreciate by 100% the moment you get on the plane.

        Imagine a personal finance blogger who spends $10,000 per year on travel for five years. He pay cash for it all. At the end of the five years, he has some wonderful memories and experiences, and $50,000 less than he would have had otherwise.

        Pretend a commenter spends $50,000 on a boat, puts 20% down, and finances the rest at 6% for five years. When the boat is paid off, he sells it for $40,000. He has some wonderful memories and experiences, and $16,400 less than he would have otherwise.

        Who is the one who is less “financially responsible”? The one who spent $50k on recreation in that time period, or the one who spent $16k? Or does it really depend on a whole lot of other factors whether either of them were being responsible?

        And for $16,000 you could rent a boat in the $50k price range maybe 30-40 times. That’s less than once a month over five years. I generally have my boat out twice a week from spring through fall. It would be *way* more expensive to rent a boat. And I couldn’t rent the kind of boat I want to sail anyway, because it’s a performance boat, and like sports cars, they are not widely available for rent.

        And really, the dig at my character because I once told a story about mistakes I made over a decade ago is not relevant, constructive, or appreciated.

        • Laraba says 12 March 2014 at 13:02

          You could argue that buying a house has similar issues — if you use a mortgage, I mean. There was a time when I thought maybe we should stay in our smaller house until we could save up to buy a house outright but that would have meant stuffing our increasingly large family (we’re up to 10, going on 11 right now) into quite a small space. So we moved into a BIG house and yes, have been paying interest for years. You thought through the boat and decided to finance it. I think that is different than people who casually purchase items without understanding how it affects them long term. Money is a tool, and I believe financing can be fine if a person or couple has thought through it carefully. I just see many people who do NOT seem to think through it — like my friend with loads of debt and stress but who is paying $200 a month for 2 Smartphones. That’s the kind of stuff that bewilders me.

        • Elizabeth says 11 November 2015 at 08:00

          Like your thinking, Tyler. For one reason because I know the pleasure and joy of sailing, too.
          I’ll say this that around Seattle, if you take sailing lessons from some marinas, you can get access to a fleet of rental boats to sign up for. One friend of mine developed groups of peeps interested in going sailing/learning to sail who would split the costs for a day out on the Sound. Pretty cost-effective way to get started, enjoy yourself, and figure out what kind of boat will eventually win your heart. 🙂
          Thrift doesn’t HAVE to be all doom and gloom in the library!

    • Carla says 12 March 2014 at 11:38

      Beautiful boat! (I’m a bit of a speed demon).

  19. Loretta says 12 March 2014 at 11:49

    There is a lot of phychological forces on how we deal with money and debt. I also have the opposite mindset of this article, even though I am extremely debt averse. For me, putting something on a credit card means borrowing against my future, and because of that, when I use my card I think twice before charging anything. If I have cash on hand, I spend it without thought, which leaves me short for thhings like a mortgage, and because of that I give myself a very strict cash allowance. I put everything I need on my credit card, and automate everything, and pay it all off each month. The key is that I automate everything.

  20. Dan Stelter says 12 March 2014 at 11:59

    Have been following the content on this site for quite some time now, and finally commenting. One question I have, is I’d be wondering how that $11.2 trillion in debt breaks down.

    For example, my wife and I are getting our asses kicked a little with medical debt, which is no fault of our own. If your health falls to pieces, you have to go to the doc and we only go when it’s really bad.

    And we’ll have a mortgage soon too. Got student loans right now, and that’s it.

    I wonder if people really are responsible, as would be indicated by a high percentage of consumer debt.

    Anyone got the stats on that?

  21. BD says 12 March 2014 at 16:05

    To be fair, the author should not say “We all can have whatever we want,” because that’s simply not true. Many of us don’t even qualify to get things on credit, because we don’t make enough money per year.

    Lenders aren’t stupid…they’re not going to finance a $50,000 car to a person who only makes $5,000 a year.

    Which is a good thing, for both lender and borrower.

  22. lmoot says 12 March 2014 at 16:33

    I think that the idea that cash gets you better deals (at least when it comes to mainstream dealers) is a myth. I’ve found the opposite to be true. Most dealerships are sad if you pay cash for a car, and they’re not going to give a deal on top of that because you’re losing them money by not financing and paying interest, or in the case of 0% financing you’re not letting them get their referral credit through the lending bank.

    Traditional dealerships could care less about your cash because they get paid up front through a 3rd party vendor (the bank that they use to write your loan). The bank/ dealer is more than happy to write up a 0% loan offer if you quality, b/f their expectation as that they WILL make money off of you when you can’t pay it off in time. Also, you do not (and should not) disclose how you intent to pay for the car. Be discreet, or if asked directly, say you’re not sure until you have all the numbers in front of you.

    • Hope says 16 March 2014 at 03:52

      Having never bought a car from a dealer, I can’t say you’re wrong, but I will say cash definitely helps if you’re buying a car from a private party (Craigslist, classifieds, family friend, etc). I saved $1500 off the price of my current car by telling the owner–honestly–that they could either have 6K in cash, since that’s all I had saved up at the time, or I could go to the bank and fuss with mortgage paperwork and title transfer to try and get them their full asking price. They took the cash, and I got a great deal on a reliable car I still love.

  23. Jacq says 12 March 2014 at 19:44

    I used my LOC about 6-7 years ago when I bought my motorhome. I had the funds invested in a taxable account, didn’t want to sell/withdraw them and take the tax hit or not be invested in what I was right then. I’d saved up a little over 1/2 the purchase price (~$53k) but had come across a fantastic deal on the net on a new one that was priced about 30% higher here vs. where I bought it from. So I took the plunge with no regrets. Having said that, I was manic about paying that LOC off. Think it took about 4 months or so to pay off. But in hindsight I was 2 years early to buy since the motorhome market was extremely soft in ’09. Oddly enough, I’ve never seen my particular model for less than what I paid, even today, so I guess it held its value / I really did get a good deal.
    Also tapped my LOC 3 times in the last 5 years to invest in the market. Two of those times, it worked out very well, once I was a little too early but it worked out well in the end. This isn’t a regular thing however, just when I have a very strong conviction.
    Overall though, for the vast majority of people, debt isn’t a good thing to get into and it’s best to avoid it.
    However… for someone like my oldest son who is *extremely* debt averse, we’ve adopted a method where I pay for certain things (RRSP contribution, investments…) upfront and he pays me back (w/no interest). Since he saves like crazy to pay me back but doesn’t seem to save as well totally on his own, this method works for us/him.
    I do know one person however who equates how much money they “have” based on how much credit they have available. I couldn’t live under that kind of stress.

  24. Dawid says 18 March 2014 at 03:51

    Government have an interest in no cash transactions. That’s how they can better controle people.

  25. valerie says 25 March 2014 at 06:33

    My husband and I went on a cash only diet a few years ago…we paid off 3 credit cards, a car, a boat and almost have our house paid off. The house is now the only thing we owe on and it’s amazing how much money we have (for our savings) since we have been paying cash…we also play this game called “do you really need it, or just want it? If it’s a need, then if we have the cash to buy it, we usually will(like last year, we pulled 6000.00 from our account to pay cash for a new roof) a huge need, as it was leaking! We have almost 1000.00 a month going into a savings account…that’s after paying mortgage, groceries and electric etc. Before we went to a cash only system, we had no money left at the end of the month!

  26. Erin says 26 March 2014 at 03:41

    We paid off our last credit card (woohoo!!!) and committed several years ago to paying cash for everything. However, now we’re ready to buy a house and can’t because we have no credit accounts and had a job loss/medical bills wreck our credit. I nearly had a stroke when I found out that paying that stupid card off and closing it cost me 50 points on my score. What do you do?

  27. Baruch says 29 April 2014 at 23:20

    I agree with it all. We are almost debt free and at this point it just doesn’t make sense to pay off what’s left since the interest left is more than the prepayment penalties. We have no credit card debt. My wife and I live on very little income but we are conscious of all spending. We value every small amount of money that leaves us. Also we still use credit cards for the ease of use but they are paid off each month in full with no exception. The key is like was said, to put everything in savings that you can do without. Put so much in savings that you feel like you are poor. For us, at this point our savings has grown so much that many times we have already paid our bills out of the savings and then our entire month’s salary goes into savings. We have saved more money than most people making twice our salary.

    Where I disagree though is that you should never take payments. When we are taking about physical objects I agree but when we are talking about things like insurance(that are based on a time period) I totally disagree. My insurance policy is for a year so if I pay up front then I have given my insurance company an upfront payment and my money is collecting interest in their bank account. In this case I look at the discount for prepaying (if any) and compare it to the interest I would gain. Anyways, it’s irrelevant since the excess all goes into savings anyways. The important thing is that you don’t buy things you don’t need whether on payments or not. Do what makes sense and not what you want to do.

  28. noname says 10 September 2014 at 21:37

    “Paying in cash might help you spend less — When you force yourself to pay in cash, big ticket items start to lose their appeal. Try walking into a dealership with the intention of paying $15,000 or $20,000 for a newer car. All of a sudden, the prospect of keeping your old paid-off junker becomes an incredibly attractive option. Am I wrong?”

    Skimmed down to that part, because the paying with cash thing was why I started to read….. the answer to your question is… Yes, you are wrong.

  29. Joti says 17 February 2015 at 11:33

    Since I’ve been on Dave Ramsey’s plan and doing the debt snowball, I’ve realized a few things after knocking out some debt. Cash equates to a clean and simple life. When you pay cash, the transaction is over and you never have to think about it again. That’s why I haven’t used my credit cards in over 5 months. I feel sick to my stomach even thinking about making a purchase on those cards. When you pay cash, you are done. I like that.

  30. Jaya says 14 July 2015 at 12:48

    I am about to pay for a newer used car with my hard earned cash. It does hurt to see my bank account get reduced in half but I know it is worth it in the long run. I did FPU and learned a lot. I also hope to advance in my career so that I can make a lot more money that I know I can.

  31. hayley says 23 January 2019 at 10:23

    i pay cash for everything because for some reason having NO debt means are a bad risk…well how are u supposed to get a loan or establish credit when a dept. store turned me down and state farm credit card, even though i have been a customer for 24 years and paid every bill in cash on time every time

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