Many of these people are successful in their efforts. Successful meaning that they pay off their balance each month and therefore reap the rewards without paying interest. This post isn't about those people. It's about our experiences.
For a number of years we played this credit card game as well - faithfully charging gas, groceries, clothing, etc. in order to earn travel credits. The idea was that we would pay off our current charges that month and throw anything extra we could at our other debt that we were working to pay down. Some months it worked well; others not so much. Overall our debt was going down but oh, so slowly.
So, last December (yep, right before Christmas) we made the switch from using credit to using a debit card only. Since that time the numbers are better (overall expenses are down about 6% and amount of debt paid down each month is higher too).
So why is that the case? All other things being equal, it shouldn't matter what method you're using to pay for your purchases. But what if all other things aren't equal? What if the method you're using actually affects how you purchase?
For us (and I suspect a lot of others) here's what it comes down to: When we put purchases on a credit card, they are part of a growing balance, limited only by our comfort level and the limit on the card. When we pay with our debit card, our purchases are subtracted from a finite amount of funds. And when the end of the month comes, if funds get tight, we have decisions to make. Put simply, we spend differently when we're paying with a debit card.
So the new plan is working well for us. Expenses are down, debt is down, but it's really about so much more than that. We're breathing easier. We like paying as we go. Using the debit card represents a daily commitment to paying down debt and living within our means. Despite the travel rewards, using the credit card was at odds with that.
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10 comments:
Congratulations. Another person sees the light! When you stop using credit and switch to debit (cash) your life takes on a different meaning.
Good work! Keep spreading the word.
Credit is not a good thing.
Welcome to the world of being debt free.
I have to agree with this. I've been using my debit card, and just switched to using a divident paying credit card. I've noticed a marked increase in my desire and willingness to spend even though I'm paying it off weekly
I guess it depends. You really weren't using the CC properly if you ever had a balance. You should have treated it like a checkbook and debited every transaction as spent money.
It really is spent money, it's how my mom taught me to use a CC. I used to use a check register and put everything in there, including CC charges. It made me accountable to spending on a CC.
Since then (I was 13), I've always used a CC. NEver a late fee, never a cent of interest. I'm not a huge fan of trying to make money from CC, but I like my rebates and I like tracking my spending. I spend cash way to easily and I forget on what.
With cash, if my DH takes out $40 I have no idea where it goes.
Living - I think you missed the first two paragraphs of my post. Congrats to you for using a cc so responsibly. Lots of people don't.
when i was repaying debt, i too didn't use credit cards. it is too easy to just let the charges go into the debt pile and forget about them.
now that we don't have any debt, and we pay off monthly, we do use credit cards to get the discounts they offer.
I guess if it works for you to use a debit card instead of a credit card, then you must do what works, but it's all psychological.
You just need to make your self spend differently with a CC instead of a debit card. You've already addressed how using a CC earns you rewards, but a CC doesn't make you spend more money. I'm not totally sure how a debit card changes your habits since you can actually spend more money than you have in the bank.
Why not put a limit on one your CCs of say $500, and then utilize it just as a debit card.
The bottom line though is if you must use a debit card to save money, then do it, but it's all psychological in the end.
i also use my cc's responsibly, but this is a GREAT concept for those who have trouble paying off debt, like a friend of mine. it breaks my heart to know that she and her husband keep getting themselves into a hole. i hope this concept can help them spend only what they already have.
Ray - Actually for me (and if the statistics are to be believed a lot of people) using a credit card does cause me to spend more money. As I said in the post, I am limited only by my comfort level with that particular purchase and the credit limit on my card. When I use a debit card I think about what my bank balance is each and every time I make a purchase and that, in turn, changes my spending habits.
I agree with the psychological aspects of using a credit card. At the checkout counter, many people rarely think about the amount they have budgeted for that particular item. The card allows you to overstep the amount you may have budgeted with very few alarm bells going off prior to receiving the bill. I think the statistics show something like one spends 135% more with a credit card than they would do with cash.
Most banks now have debit card registers, which you can use with a credit card, and do the same exercise you would do with a check register, or you could just use pages of your check register to tally your credit card expenses. By starting with the balance being the budgeted amount you have for that item, you can give yourself a check before you exceed your limit.
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