Want to get out of debt? Do you feel like your household finances are out of control? Here’s a radical solution: cut up your credit cards and pay for everything cash.
Writer Megan McArdle, economics editor of The Atlantic, talks about leading a life without plastic money in this episode of EconTalk (website, iTunes), a podcast from the Library of Economics and Liberty at George Mason University.
McArdle decided to follow the get-out-of-debt gospel of the self-improvement guru Dave Ramsey. It involves making budgeting decisions each month and putting the cash for each category in an envelope. The idea is that it’s harder to part with the actual cold cash than it is to sign a credit card slip. And as you see the money in each envelope dwindle, it’s easier to forgo little unplanned purchases like a piece of candy at the grocery checkout counter.
Although it felt weird initially, McArdle reports that the system was also liberating. She felt no guilt about buying a new dress because she knew she could afford it. The money was right there in the envelope.
This episode is a departure from EconTalk’s usual focus on Libertarian-leaning academic economics, although McArdle does go on to discuss topics like the national debt.