For proponents of frugality and debt free living, credit cards make for a pretty easy target. It doesn’t take much work to point out the potential pitfalls of using credit cards for regular spending.
It’s so easy in fact, that I get kind of tired from beating up on credit cards. So for this blog, rather than focus on the negative, I’ve highlighted 6 great benefits of managing your day-to-day finances credit card free!
1. Less Temptation To Make Impulse Purchases.
If you are someone who has very poor control over spending, you know that having access to credit can make for a volatile situation. When buying something on impulse, you’re allowing your emotions to dictate your spending decisions. Bad idea! Think of your emotions as flames on a fire. Now, consider your credit card(s) the open can of gasoline nearby. By allowing the fuel so close to the flame, the situation becomes unstable. In order to keep things under control, you need to move the gasoline far away from the flame.
That’s essentially what you are doing by deciding not to use your credit card for purchases. If you limit your available resources to the cash in your account that you’ve budgeted on a biweekly or monthly basis, you have placed on yourself limits or restraints on your spending.
2. Makes it Easier to Track Your Spending.
This one is simple, the fewer accounts your purchases come from, the easier it is to track how much you’re spending on different items. It’s true, the use of smartphone budgeting apps and other technology has made it possible to track spending from multiple accounts, but often if you are pulling out one or more credit cards constantly it’s easy to lose track of how much you truly have spent.
3. Reduces Your Likelihood To Overspend.
This one is similar to my first point about impulse purchases, but expands on the concept somewhat. There are times where we may not necessarily be purchasing on impulse, but the almost subconscious awareness of having an available credit limit causes us to overspend.
Here’s an example:
Perhaps I’ve established a bi-weekly budget for groceries of $300. If I’ve limited my available spending for the next two weeks to the funds from my pay check, in my checking account, I will make every effort to ensure I do not spend more than the $300 on groceries, as doing so will have an immediate impact on another area of my bi-weekly budget.
However, if I’m used to paying for my groceries with my credit card, and I have an available limit of several thousand dollars, I may not be as diligent to keep my grocery bill within budget. It would be easier for me to say, “it’s ok if my groceries are $375, as I can pay the $75 at the end of the month. Hey, It means extra travel rewards points anyways, so that’s a good thing, right?”
Sounds harmless, but it all adds up. This laissez-faire approach can quickly result in unpaid credit card balances at month end, and on it goes.
4. It’s a great feeling!
Plain and simple, whether you are disciplined to pay off your balance in full each month, or are a slave to your credit card, it’s a better feeling using your own, hard earned funds to pay for things. Also, because you worked so hard for the money in your checking account, you tend to treat it more responsibly, and that will save you money in the long run!
5. Eliminates the possibility of paying ridiculous amounts of interest.
It’s no secret. Credit cards normally carry the highest interest rates amongst all credit products. While there are some “low rate” cards on the market, (usually with an annual fee attached), it’s typical for a major credit card to have a rate of 19-22% annual interest rate. Retail store cards can be even higher, often 30% or more.
To give you a dollars and sense example, a $3000 balance on a 20% credit card held for 12 months would cost you $600 in interest alone. At 30%, it’s $900.
The truth is, the average balance carried on a credit card is closer to $10,000 than $3,000, so the costs can be pretty steep!
If you don’t use your card, no chance of this happening to you!
6. Decreases your chances of becoming a victim of credit card fraud.
This one is a smaller benefit, but one that is becoming more and more relevant in this day and age. It’s becoming commonplace for people to have their credit card information compromised. Criminals have developed very sophisticated technologies to intercept individuals credit card details, and make unauthorized purchases around the world.
While you are usually protected by the credit card issuer against any losses associated with fraudulent activity committed on your account, it can be an enormous headache to deal with. It may involve your account being temporarily frozen, having to order new cards and spending a significant amount of time dealing with your bank or credit card provider to straighten things out.
While any account could theoretically be compromised, the less you use your card, the fewer opportunities there are for your data to be stolen.
In Summary
Credit cards do serve a purpose. But for many, they should be used only as a last resort, a dire emergency, for convenience when travelling, when it’s the only option available such as when securing a hotel room or rental car.
This can be easier said than done, I know that. If you’re currently waist deep in credit card debt and caught in a vicious cycle of dependence with your Visa or Master Card, you may wonder how to get out.
Stay tuned, as I will post another article in the near future about how to break you credit card dependency!