If you have any amount of credit card debt you know how hard it can be to break the plastic swiping habit. Credit cards are just a way of life for many people and credit card debt isn’t always seen as a big deal. If you’re struggling with credit card debt, I have some ideas to help you learn how to stop using credit cards for good!
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Why you should stop using credit cards
The main reason to stop using credit cards is to reduce the amount of debt you have to worry about. Although it can seem like an easy way to fund larger purchases, it can be very easy to start using your card for everyday transactions. Once interest and new purchases start to add up, things can get out of control pretty quickly. If you don’t stay on top of making your minimum payments or find you can’t make your payments, it can wreck your credit very quickly. Bad credit can affect a lot of other aspects of your finances.
You are also costing yourself a lot of money if you carry a balance on your card from month to month. Credit cards usually charge pretty high interest rates – 20% and above isn’t uncommon. For comparison, my mortgage interest rate is 4%. You are paying the bank a pretty good fee to use their money when all it would take is a little planning and saving to use your own money.
Do you really spend more with a credit card?
Yes! And there’s actual psychology to back that up. When you use your credit card, you aren’t actually paying for the item right then, and you know that. This makes it much easier for you to hand over that card. According to Psychology Today, “…the combination of credit (which itself is an abstract concept) and payment that comes at a much later point in time may act as a numbing balm for the pain that is normally associated with spending money.
This deals with a concept known as coupling, or “…how much a consumption experience and the payment for that experience are linked together in a person’s mind” (Psychology Today). Basically, when you spend cash you’ve earned, you immediately feel the pain of that cash leaving you. When you use plastic, your brain knows you aren’t paying for the item right then. You don’t feel the immediate pain of payment. Be prepared to spend more if you’re using credit cards all the time!
What happens if you stop using credit cards?
You might be wondering what will happen to your card if you stop using it for an extended period of time. This can depend on the card company. Many banks review unused credit accounts after a year or two and may close the account due to inactivity. The time period and criteria for when an account is closed will vary between companies.
If you want to leave cards open with zero balances for your credit score, you may not want your account to be closed. In that case, I would set up a recurring bill like Netflix to come off the card. Pay this balance off each month so you aren’t left with a card balance. You’ll still have activity flowing through the account.
How to stop using credit cards:
Here are five things you can try out to work on breaking the habit of swiping that plastic!
1. Get on a budget.
Most credit card use comes from wanting things you don’t currently have the money to buy. Sometimes these are impulse purchases, and sometimes it’s just the result of not planning ahead. Getting on a budget solves these issues.
Creating a budget for your money is really just setting a plan for how you’re going to spend it. It does take a little planning, but it will help you live within your means and have money to spend on your top priorities. If you’re completely new to budgeting, check out my Complete Guide to Writing Your First Budget to get started!
2. Save an Emergency Fund.
A common use for credit cards, other than impulse purchases, is for emergencies. Things just come up that have to be covered if you don’t have the cash for them. The solution to this problem is to save up an emergency fund.
An emergency fund is a certain amount of savings that you set aside and do not touch unless something urgent and unexpected happens. Not buying a new couch or iPad, not going on vacation with the girls. Emergencies. So if your car gets a flat tire, or your dryer overheats, or your dog gets sick and has to go to the vet. If you already have money set aside for unexpected events, you’ll be more prepared to deal with them without adding to your debt.
The amount you want in your emergency fund will depend on your situation. I generally like to have $1,000 at all times. That seems to cover most minor emergencies and isn’t a crazy difficult amount of money to save for most people. Take a good look at your situation and figure out a good amount for you to work on saving. You can also go one step further and learn about sinking funds.
3. Cut up or freeze your cards.
Literally. Get out those scissors and chop that plastic into little bits. Or grab a bowl, fill it with water, dunk your card, and put the whole thing in the freezer. Both can be good ways to stop using that card!
Sometimes not having a card is the only way to break the habit of using it. This almost means you need to log into all those online accounts and delete the saved card information as well! Eliminate all temptation or possibility of using the card so you get used to not having it as an option.
4. Try using the cash envelope method.
With the cash envelope method, you would be using only cash for your everyday purchases. This method does require you to write out a budget. Set up a literal envelope for each of your spending budget categories – things like groceries, personal spending money, pet supplies, etc. Take out the amount of cash you need for each of these categories based on your budget.
The beauty of the cash envelope method is how simple it is – once you run out of money in a category envelope, you don’t get to spend any more money! When it’s gone, it’s gone. This makes it easier to stay on track with your budget and keeps you from getting used to swiping plastic whenever you want something. As you get used to using cash instead of the card, you’ll be less likely to pull it out for those impulse buys. You can get a full rundown of the cash envelope method in this blog post.
5. Look up your card balances.
The main point of this tactic is shock value. Have you ever added up how much you owe on your credit cards? Have you ever checked how much you charge on the cards, and then pay minimum payments on during the year? If you’ve never really taken a look at these things, the numbers might blow your minds.
The easiest way to look at this info is by pulling your card statements. I’m able to look at mine through my Discover app or by logging into my account online. A lot of cards also send you a yearly breakdown of the card annually that will show your totals. If you don’t have that summary, you want to add up the total charges and the total payments for the entire year.
The first time I did this I was completely annoyed with myself. The unnecessary things I was constantly buying on my credit card was around $10,000. I paid it off every month, but it really put into perspective how much money I was spending and what I could be doing with that money instead!
Should you close credit cards you don’t use?
I really think the answer to this question depends on your money philosophy and where you’re at in life. Some people believe you don’t need a credit score at all and think you should close out every card you have once you pay it off. Others prefer to keep their credit score high and just leave the card open with a zero balance. There are pros and cons to both of these options, so I think it comes down to personal preference.
If you close all your cards when you pay them off, your credit score will go down. The amount and age of your available credit decrease when you close a card, which negatively impacts your score. However, if the goal is to not have a credit score at all, this might not matter to you.
If you pay off your cards but don’t close the accounts, your credit score will likely either go up or stay pretty steady. This can make it easier to get better interest rates on loans, get approved for better apartments, and secure better interest rates on mortgages. Without a decent credit history, you also won’t be able to get as good rates on things like student loan refinancing. If you’re at the point in your life where you’re worried about these things, you may want to leave the cards open once they’re paid off.
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