Cash or Credit

Earlier I wrote that I buy only what I need and I pay with cash. There are two exceptions I have to the "pay with cash" principle.

First, we didn't pay cash for my house. We took out a mortgage for 60% of our house. We could have paid cash, but we didn't want to use up a significant portion of our savings. In 2003, interest rates were also at 5.5% for 30 year mortgages. However, we are working to pay off the mortgage in about 15 years. And we are considering paying it off in the next 2 years for reasons to be explained in a future posting.

Second we use a credit card for convenience. We charge most of our regular expenses (e.g. groceries, gasoline, clothing, gifts, and entertainment) to a credit card and pay off the entire balance every month. We use credit cards that have no annual fee and either points or rebates. I don't check the interest rates since we always pay off the balance. Currently, we carry only 3 credit cards and that may even be too many. We each have the card from when we were single, Discover and VISA. We added American Express because that is the only card Costco accepts. We never ever carry a balance nor pay interest.

On large purchases, such as furniture, appliances, or services, I always ask if there is a discount for paying cash. About 90% of the time, there is a 2-3% discount, which amounts to $20-30 per $1000 spent. My spouse is reluctant to ask for a cash discount, but I am always happy to ask. As a colleague once told me, the worst they can say is "no." And very few people are say no nowadays. If there is a discount, I pay cash. If there is not a discount, I use the credit card and take the rebate or points.

This is not financial advice. Please consult a professional advisor.

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