Consumers Tired of Credit Decide to Use Cash
Cash only money management
William Hazelgrove of St. Charles, Ill., is tired of mortgage loans, auto loans, unsecured loans and debt. He’s not alone in his sentiment toward credit and debt, but unlike other consumers, he is doing something about it. In the past Hazelgrove and his family dealt with credit much like most people did. When expenses came in, he immediately put it on his credit card. It wasn’t until his credit company hiked the interest rate due to the recession that he realized the problem. “I realized if I ever wanted to live within my means, I would have to switch to using cash only.”
Hazelgrove took stock of his finances, and slowly but surely, began paying down debt and increasing savings. He took on a second job and channeled the money directly to both. His complete solution included:
- Keeping a debit card balance above $100
- Liquid savings of $5,000 for emergencies
- Using Quicken to keep track of every expense
One of the main commitments he had to subscribe to was not spending when cash was low. He said, “It was hard, especially towards the end of the month, but I had to forego credit card spending. If I couldn’t afford it, then it had to wait.” It was difficult, he admitted, but now his goals are all realized. His commitment to living credit-free is not a bad idea.
Statistics on credit
When it comes to credit, almost everyone has it. For example, a recent survey done Hoffman & Brinker showed that as of September 2009, Americans owed $917 billion in revolving credit lines. Just about 70 percent of that credit is currently past due.
It’s no secret that consumers over-used their credit, and the harsh reality is that lenders have changed their rules in terms of lending and limits. Without an action plan, many Americans will find themselves at a difficult juncture in their finances. Mortgage loans, car loans and unsecured loans are no longer given out to just any consumer. Prior to the recession lending laws were lax. It was easy to get funding and almost every credit-scored consumer could find some lender to extend money. Granted, the money most likely would come with a hefty interest rate, but for most consumers that was a price they were willing to pay.
Today’s world of cash management
The lending crash had the biggest effect on people going cash-only. Because of the huge number of defaulting borrowers, credit card companies decided to take drastic action in an effort to mitigate their losses. They raised interest rates to unmanageable levels and cut limits. One consumer, Daphne Harringe of Cincinnatti, Ohio, said, “We always used credit to manage our monthly bills. Always. Then suddenly our interest rate shot up to 27 percent after one delinquency. It was difficult to manage, but we realized that we had to switch to cash if we were going to save our future.”
More and more consumers are heading towards a cash-based money management system. In particular because of the way credit lenders handled the recession, borrowers realized how unreliable credit can be. More consumers are now moving away from traditional funding methods like unsecured loans, mortgage loans and credit cards. They are opting for cash as they forge ahead and create their financial futures.