Take the 'GMA' Credit Card Challenge
One family gives up their credit cards for a month. Can you?
July 26, 2008 — -- Americans are addicted to their plastic. Credit cards -- those bright, shiny cards with 16 magic numbers that make all your purchases come true -- are fast and easy to use.
Maybe too easy. Often, you don't really know how much you're spending until you get the bill at the end of the month. Some call it "free money."
But studies have found that if you forego plastic and use only cold hard cash, you're likely to spend much less -- 20 percent less, according to one recent study.
"Paying in cash really puts a break on spending," said Donna Rosato, a senior writer for Money magazine. "It's not as convenient. You can only pay as much as what you have in your pocket. But also spending in cash makes it more memorable how much you are spending."
We decided to put the cash-only theory to the test with the "Good Morning America" Credit Card Challenge.
Marissa Farhat is a pharmaceutical sales rep. from Arlington, Texas. Her husband, Phillip, is a high school football coach. The Farhats live on plastic, with nine credit cards between them, and virtually no cash on hand.
"A few pennies ... That's it really. There is not a dime or a quarter or anything," said Marissa, describing the contents of her purse.
"I don't have a dollar in my wallet. Nothing," shared her husband.
And while the Farhats usually pay off their credit cards every month, they still spend more than they would like.
"Every little thing just adds up," she said. "You think that we aren't using it that much but then, you know, it's a $1,000, so that's a lot of money."
That's money that could go toward their son Ford's college fund. They have agreed to give up their credit and debit cards for one full month.
Enter Gail Cunningham from the National Foundation for Credit Counseling. Cunningham made a house call to see the Farhats as part of "GMA's" Credit Card Challenge.
"It is by design that the lenders have distanced us from our hard-earned cash," Cunningham said. "It makes spending easier. It has a sense of unreality about it."
Cunningham helped the Farhats cut up their credit cards in very dramatic fashion. Not content to use just scissors, Cunningham had the Farhats mow one of their cards over with a lawnmower and placed another card on ice, literally, by tossing it into the freezer.
"More plastic equals more spending, so let's take care of that," Cunningham stated before a card was chopped up in a blender.
With their cards destroyed or locked away, the Farhats set off into the big consumer world using paper, not plastic.
"I'm really interested to see if it is gonna save us money," Marissa said. "Cuz if it is going to, well then we're gonna continue to do it. So, I guess we'll just see how it ends."
Gail's Tips for Keeping Your Spending In-Check:
Limit the number of cards you have.
Only charge what you know you can afford.
Periodically check your monthly spending by going online or saving your receipts
Call your lender and set a borrowing limit. (Make this your last choice, since it could negatively affect your credit score.)
Stay tuned for the results of the Farhats' credit card challenge.