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Will You Have a Cash-only Yuletide?

This article was written by in Credit. 18 comments.


There’s a story circulating that customers are using cash instead of credit for their holiday purchases this year, more than they have for many years past. I found this story detailed in Newsweek. Here are the highlights you should know:

  • Credit card issuers are raising interest rates and fees, while lowering spending limits
  • Some analysts are saying that a shift toward using only cash could last after the holiday season
  • JC Penney’s has seen a decrease in spending near the end of a payday cycle, and an increase in spending right after paydays. While normal for discount stores, JC Penney’s hasn’t observed this in the last 17 years
  • Wal-Mart has observed that payments made with credit cards decreased 7.4% in the current fiscal year. For the past three years, this percentage has increased.
  • Target’s credit card operation is being more stringent with its current customers, but offering a 10% discount for new customers (I think that means a 10% discount when you first use it, which isn’t a big deal)

These factors, and more, mean that more people will be paying only what they can afford when buying gifts for the next few weeks. Readers of Consumerism Commentary who already have their finances in order will have known for a long time that carrying a balance on a credit card is unwise. But I’m sure you also realize that millions of people who don’t earn a lot still feel like they deserve to reward themselves and their loved ones, if only once a year.

Naturally, the credit issuers mentioned in the story all point to the continuing credit crunch as the reasons for their need to be more stringent. One of the scant few things we can look at to identify the badness of the credit crisis is the TED spread. Yesterday, the TED was at 2.05. Normally, we want to see a TED at under a level of 1.0, but last year this time, it was 1.95, not too terribly different from yesterday’s level.

I’m fairly certain these new decisions were made by credit card issuers a few weeks ago (it takes time to make a big change), when the TED was at panic-inducing levels of near 5.0. So does the current lower level mean that credit card issuers will change their minds?

More importantly, are you planning to pay for things differently this year, and maybe for more years to come?

Updated February 10, 2011 and originally published November 25, 2008. If you enjoyed this article, subscribe to the RSS feed or receive daily emails. Follow @ConsumerismComm on Twitter and visit our Facebook page for more updates.

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About the author

Smithee formerly lived primarily on credit cards and the good will of his friends. He is a newbie to personal finance but quickly learning from his past mistakes. You can follow him on Twitter, where his user name is @SmitheeConsumer. View all articles by .

{ 9 comments… read them below or add one }

avatar Miranda

We probably won’t have an ALL cash holiday season — but it will be pretty close. I think there will be about $150 that we will put on the credit card for online shopping that doesn’t take our cash third party payment provider and for stuff we can’t find in town.

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avatar Eden

This will be my 2nd cash only Christmas, last year being my first. Now that I am finally getting my financial life in order, it seems crazy to think of doing it any other way.

By the way, I’m also spending a lot less this year. I’m making arrangements with friends and family to skip gifts this year. I’m planning to spend only about 25% of what I did last year.

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avatar That One Caveman

I wrote about this a couple of weeks ago. We’re going cash-only as a way to impose a hard-limit budget. We’ve already pulled out the money we’ll use for buying gifts. That money sits on our counter in an envelope awaiting our store trips to be spent. If we buy anything online (which I’m sure we will), the equivalent amount of cash will be removed from that envelope and set aside to pay on our credit card bill.

It’s an echo of the envelope budgeting system and it’s working well so far. There’s no better way to maintain a strict budget than cash-on-hand.

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avatar Amy

This is what we did for Christmas. There was an extra paycheck in October (we get paid weekly). We cashed our checks and put the money at home. When we see things we want, we purchase them on our credit card (a rewards card) and then deposit the cash into our checking account. Then I “hold” the money for when the credit card bill comes in. It makes for a very interesting looking check register (I still use a manual one!) but so far, it works for us. Except when my husband sees our checking account balance of $3,000 and I tell him, “No, honey, we really only have $200 in there!” I use our credit card for almost everything but always have the money in there to pay it off every month.

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avatar KC

I’ll do what I always do – use my credit card. I get rewards and I pay it off monthly. I’ve learned to control my wants for things that aren’t so important – it takes time, but it can happen. Other things in life become more important and you are willing to curb your wants to pay for the things you need (like tires, healthier food, a better/safer home). I guess I could use cash, but I don’t really spend any less by using it. I won’t use debit because its tied to my checking account and I don’t want anyone draining the account.

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avatar Yana

We haven’t used credit in several years, and don’t intend to. Most of our purchases are made with a debit card. I can’t think of a good reason to use credit, but if there were one, Yuletide wouldn’t be it. If there were no-interest credit cards, that wouldn’t make it desirable either, as pledging future earnings for current expenses sits entirely wrong with me.

I went to the dentist over a year ago, and had $600 or so worth of work done, but I also needed several caps at $700 apiece. My teeth are not worth that price to me, and the dentist said he was working on getting “Care Credit”. I have no interest in that. If something is too expensive or not worth paying for all at once, it is not worth having, as far as I’m concerned. I have no caps, and I would highly prefer working around it than paying ridiculous sums of money.

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avatar Susan

I charge the gifts to my credit card (for the cash back and the extended warranties). Then I pay my bill in full.

It’s sort of the best of both worlds.

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avatar Grace

The increased use of cash this holiday season will undoubtedly have people looking for sources of “extra cash.” By using money that is not part of their usual budget, people can take strain off of their financial situation, which would typically be worsened by the holiday season. Whether it’s cash, credit, or “extra cash,” retailers will need people to spend in the coming weeks in order to recuperate from the overwhelming losses in recent months.

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avatar CathyG

This is the second all cash Christmas for us. Most of our presents were bought at big sales throughout the year for cash so we have very little left to purchase. I doubt we’ll spend even $150 more. Credit card companies are the scum of the earth and I feel no need to support them.

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