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.

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.

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All of my credit cards offer at least one percent back, and my Shell card gives back five percent on gas purchases. All of the cards are paid in full each month. When you consider that many bank savings rates are currently less than one percent (I have one small account at a local bank that currently pays .01 percent, but I keep it open for check cashing and the free ATM), I make a better return by spending my money than saving it! Not really, of course, but it is something to think about.


In the past year I have used the extended warranty feature of my credit card two times. My card also provides free roadside assistance as well as travel insurance.

That’s not bad for a credit card that doesn’t cost anything and gives back 1%.

Like Kevin, I do pay off my balance in full every month.

Mel B.

I actually find credit cards to be an easier way of keeping track of money. Cash and change disappear all too easily from my wallet, but when I consistently use my credit card, I can easily keep track of every dime I spend. It’s much more convenient than trying to count pennies at the grocery store while trying to keep track with the 4yr old, who regularly wanders off chatting with any stranger who smiles with him.

I pay off my credit card every month (and get lots of cash back to boot!)


Super post! We do the same. We benefit quite a bit from using credit cards. We pay off the balance every month and use the cash back bonus for gift cards to our grocery and hardware store. We never pay finance fees this way; payments are automatic so that we never forget. There are months where the cash back bonus is 5%. The free money is great if you can discipline yourself to treat the card like a checking account. You are so right; it’s just a tool, and a very handy one at that.


Finally, some common sense advice about using credit cards! I am sick of people blaming their credit cards for their own lack of money sense. Like you I pay all my expenses with a credit card and those cash bonus points are a Godsend. I wish people would learn to use their credit cards sensibly and buy only what they can afford. Thanks for the super article.


This is exactly what we do! We buy everything with a credit card just so we can rack up points. We never buy anything we wouldn’t normally have bought and always pay it off at the end of the month. I guess we think of it kind of like a debit card -if the money is not in the bank, we don’t put it on the card.


Shirley, you are so right about this. Like you I pay the entire amount due each month and never carry a balance. My viewpoint is that it is more sensible to get all the perks and points from a credit card than to use cash but mostly I don’t like the contempt some of the cash-only people have towards credit cards in general and people who use them. It was very refreshing to read this post and see another viewpoint. Thank you.


One trick that we have found useful is to subtract our credit card purchases from our total in our check register as we charge. This way, we consider the money spent and when we pay off our balance each month, it is painless!


I believe my credit cards are great tools. I have about 6 of them and I never carry a balance. I live in a big city and if my purse should get stolen or lost, I don’t have to worry about losing money. I don’t have to carry loads of cash with me. I have excellent credit and the cards pay me awards cards that I can use anywhere. For me it is a no brainer and I have never used the cash envelop system, but I do use a spread aheet to track my money and everything that comes into the house. I even keep an inventory of food for tracking purposes. My system fits me so I use it to my advantage so I agree that one size does not fit all.


I have a Visa that earns you Reward Points. I use it for almost everything (except groceries – I have another credit card for that and it offers cash back) and by the end of the year I have enough Rewards Points to buy gift cards that I use for Christmas gifts – talk about win win. I always pay the balance of each card every month and I won’t have a credit card that charges any kind of annual fees. Credit cards are great financial tools – but like any power tool – you need to be careful how you use them.


Things are rarely if ever one size fits all. I have one credit card and it’s paid off in full each month. It allows me to rent cars, book hotel reservations, order seeds and other supplies online. None of these could be done with cash.


I personally find cash to be the less frugal option. When I have cash I want to spend it. When I have to swipe a card, even if it’s just my debit card, I am more likely to think about if I really need to make this transaction or not.


We use credit cards with points and cash back systems, and pay them off within the month. They pay us to use their cards :)


Totally agree. It’s crazy not to use your credit card and forfeit the cash back. We use our credit card whenever we can. Very good essay. And, I used to do the “envelopes” for many years.