Do you hate credit cards?
Do you live a cash-only lifestyle?
Many people think only using cash keeps them in control.
They think that even with a budgeting app they’re in full control.
They think that it prevents them from overspending.
They think that because cash is a finite resource, only what is on hand can be spent.
They also believe that only credit and credit cards lead to debt.
Unfortunately for you and all of these people, that line of reasoning is wrong.
There are a couple of misconceptions when it comes to cash and debt.
Both, if taken too lightly or ignored, can be just as dangerous to a person’s financial state as mishandling credit cards can be.
Cash is not foolproof
The first wrong assumption here, and the most dangerous, is that you cannot get into financial trouble by adopting a cash-only lifestyle.
In fact, this is further from the truth.
Just because you shouldn’t be able to spend more money once your balance reaches zero doesn’t mean that it is always true.
There is a little thing called overdrafting, which is a common problem among people who have poor money management skills.
For the uninitiated, an overdraft is what ends up happening when you make a purchase via check or electronic debit and there is not enough money in your account.
In some instances, the bank will process the payment and allow the account to remain overdrawn, or negative.
During that time, the bank will also charge an overdraft fee while charging interest until the balance is brought back to a positive value.
In other cases, the payment is rejected outright.
They company you paid will also charge you a fee to cover their own returned deposit charge.
But if you’re already at zero, you won’t be able to pay that either.
Overdrafting is very easy to do if you do not have a handle on your account balances.
Or if you try to play games with floating funds–planning on a deposit coming in but hits the account after purchases have been made.
The best case scenario is that only one payment bounces.
The other end of the spectrum occurs when the one creates a cascading effect on a series of payments.
The end result can be a significant negative balance in addition to a serious number of returned item fees and fees passed along to you from the companies you attempted to pay.
There is relief–from a bank of all places–which takes the side of the consumer. The Discover Bank accounts limit overdraft charges to one per day. This way, if you screw something up accidentally, you aren’t hit with an overdraft charge for each transaction that is affected on that day!
Debt is not exclusive to credit cards
The first thing people equate with consumer debt is credit card debt.
That is far from where the line is drawn.
The reality is that debt means owing anyone anything, monetary or otherwise
You may be wondering if you only use cash then how can you end up in debt?
It’s really quite easy to do.
The answer lies in your spending habits.
You’re undoubtedly aware that putting more on credit cards than you can repay is a major cause of debt.
But what people tend to ignore is that even if you don’t use credit cards mishandling your money can also lead to debt.
You may go out on a shopping spree, using just your debit card, but wind up spending more that you originally planned.
When it comes time to send in your payments for things such as housing, auto, phone, power, or any other bill you may not have enough in the bank to pay one or more of them.
What happens next?
You become indebted to these companies.
You are now in debt.
The more out of control your spending is, the further behind you get on your bills.
Debt is not exclusive to credit card users, and as you can plainly see here, it is very possible, and not that difficult, to get into debt even with a cash-only lifestyle.
The information is all there for anyone to see: cash is not as safe as some of the pundits will have you believe.
No matter what the experts and studies say about the psychology of people’s spending habits, no matter how much people will argue that cash makes them spend less, it is very possible to overextend yourself financially using cash.