Reader question… “Would you share your thoughts about the cash envelope system versus the use of credit cards? I read today that any use of a credit card is irresponsible and that anyone using a credit card will end up spending more money than if they used only cash. Do you agree?” –Anne B.

I’m glad you asked this question because no, I definitely don’t agree. One of my pet peeves is the “one size fits all” approach to simplicity and frugality… the cash envelope system is a perfect example of an inflexible fix that is being promoted as the only responsible solution for everyone. It isn’t.

Obviously there are people who can’t (or won’t) control their spending, and these people should definitely avoid credit cards completely. However, insisting that there is no responsible way to use a credit card and that EVERYBODY will spend more if they use one is ridiculous. Many people can (and do) use credit cards in a responsible way without extra spending and without accumulating huge debts. These people are just as responsible and just as “frugal” as the people who pay for everything with cash.


Common hollyhock (Alcea rosea)

Properly used, a credit card is just a financial tool, like cash or your checking account… and a credit card that gives cash back can actually earn money for you in the same way that a savings account accumulates interest. A credit card also provides valuable buyer protection if there is a problem with a service or purchase.

Like many, many other people, we use a credit card when we shop for groceries, pay the electric and telephone bills, whenever we buy gasoline and heating fuel, for major purchases like appliances, and for our business expenses. Most of these are regular expenses that must be paid month after month, and the amount we have to pay remains the same regardless of what payment method we use. It just makes sense to pay with the credit card and accumulate the cashback bonus that we would not receive if we were using only cash. And like many, many other people, we keep a detailed accounting of every charge and we always pay the full credit card balance at the end of every month.

Obviously the use of a credit card does require personal discipline, and I definitely do not advocate carrying a credit card balance month to month. But when a credit card is used thoughtfully and with common sense, it is just another responsible way to handle your finances.

A cash envelope system is definitely NOT the only frugal option.