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article imageLiving on a Cash Only Diet

By Michael Bearak     Dec 15, 2009 in Business
While many people have a number of credit cards in their wallets. here is the story of five families that have decided to go without credit cards in their lives.
Going with out a credit card to some seems very scary. How are you going to live without that prestigious "gold" card or "platinum members only elite" card? In the recent economic times many people have come to realize that they don't need credit cards and can live off what they earn, as long as they budget carefully.
The Hazelgrove family that live in St. Charles, Illinois went to their cash only system four months ago, according to Yahoo.finance .They are a family of four plus Bach the dog, William is a 49 year old novelist. Originally they had $22,000 of credit card debt because to at their own admission they always reached for their credit cards. They admitted that to the only way to live within their means was to go to a cash-only system. The biggest reward they found was that they OWN everything they buy.
While some people who have gone to a cash only system relied on using the debt card the Hazelgroves decided to only use the debt card for large purchases over $100. What they realized is that not all the charges hit immediately and you can run over your balance and then get hit with high overdraft charges and fees. So instead of handing over the debt card for a $3 latte the Hazelgroves only buy it if they have the cash to do so.
Now the Hazelgroves prioritize their expenses. First there is the mortgage, then utilities, then food and medical bills. They also worked with the people they owe money to in order to space out the bills to fit their income flow. The other big thing the Hazelgroves did was was to make sure there is always a $5000 cushion for emergencies in their account.
Brooke MacDonald is a 28 year old account executive in Annapolis, Md. She went cashless a year and a half ago. After getting out of school, buying a home, car and everything that went with it, Brooke found herself under a pile of debt. It was so bad that she hated to go to the mailbox afraid of what was going to be there. She found herself in another battle, she is young and wanted to go out with her friends but at the same time she wanted to purchase nice things for her home. Finally that moment of clarity hit Brooke as she realized she just could afford to do everything that she wanted to do. Again prioritizing what money went where and she expects to be debt free in about 2 more years. She cut 20% of her debt in the last year and a half.
Because Brooke budgets things out and earmarks money for savings she can see what she is putting away after her bills and what she has to spend at her discretion. She also has a special system for large spur of the moment purchases. If she wants something, like an outfit that would cost her $75, she will put the money aside for a week. If she still wants it after that point she will get it.
Meet John Wilder, a marriage and relationship coach and author from New Castle, Indiana. John went to the cash-only system three years ago at the age of 56. John realized that he had become a slave to credit cards, and he decided enough was enough and he was going to stop using his cards. John's biggest problem was that while he got rid of his cards he found that hotels and car rental agencies still require you to have a credit card. For the last three years John has been using a front-loaded credit card, Wal-Mart's MoneyCard. It is a prepaid credit card that shows up as a normal credit card when he makes a transaction. Unlike some debt cards too, it won't let you charge more than you have on the card. If you are out of funds, you are declined. The only thing is that it does have a $5 monthly service charge. Before someone grips about the $5 a month or $60 per year, if you carried an American Express Preferred Rewards Gold card you would have an annual fee of $125 or $150 to carry their Sky-Miles card. While you do get mileage for those purchases you are paying a much higher annual fee and possible interest rates in the upwards of 14%.
Alex Cohen is a 28 year old marketing manager in Philadelphia and he went debt free and to a cash only system 3 years ago. The last thing that Alex charged was a new laptop after racking up thousands of dollars in past due bills and credit cards debt. While his parents helped him clear up his credit card debt Alex figured out that he had to make a go of life without credit cards. While he admits it was difficult at first he made the shift and now it is just a matter of planning. It is still hard to save for big-ticket items.
Since Alex is goal oriented he has opened up different savings accounts for big purchase items and he adds a little bit at time watching it build and move closer and closer to his goal. He calls it "incremental savings." What Alex also found out was that ING Direct doesn't' require a minimum balance so he has a number of savings accounts through them for bigger savings like a house, car repairs, emergencies and vacations. Alex looks at his process as the reverse of credit cards. Instead of instant gratification followed by extended pain of owing cost and interest. Now he forgoes the gratification goes through the hard work of saving up for the big rewards and gratification down the road and for peace of mind.
The last family is the Tulmans from West Hills, California. With Dawn is 39 and a small business owner with her husband Rob and 3 children. The biggest challenge for Dawn was running her business without a credit card. The Tulmans are debt free and haven't carried a credit card in over a decade, they have been debt free for 4 years now too.
Dawn tells the story about how they have had to forego a number of things like Starbucks, eating out and vacations. They have savings for major purchases, but what they realize is that if they used credit cards they would be paying more for the interest on the cards than they are earning with the money in their savings account.
Their company is a computer-service company so there isn't a huge demand for a credit line. People pay as the work is completed, and that helps to generate cash flow. Dawn does remember a time when they were contracted to install $10,000 worth of computers. They made a deal with their customer to have them pay for the computers. This was good for two reasons; first because it didn't tie up their savings until they were paid and second, if the customer came up short it the risk load for the Tulmans was far less.
No one in this article would tell you that going to a cash only system is easy. To some it might even seem scary, but five different households in five completely different places in their lives have demonstrated that it is completely possible. Dave Ramsey, a financial consultant, runs his entire company on a cash only basis. He tells you in his classes that he does not carry a credit card. When he has to go out and buy a new dishwasher or stove he carries CASH into the store and he uses that as leverage to strike a deal. Ramsey will always tell you to never be afraid when purchasing something to ask if they can do better on the price. He instructs you to price shop and to never be afraid to walk away from buying something.
Information for this article taken part from a article in part from CNNMoney.com
More about Credit cards, Cash, Debt, Debt-free, Dave ramsey
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