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How to Stop Spending So Much on Credit

Are your credit cards and lines of credit burning a hole in your pocket? You wouldn’t be the only one. According to the Federal Reserve Bank of New York’s latest figures, credit card balances rose by 15% year-over-year, the biggest jump this debt has seen in more than 20 years.

As your balance grows alongside the national average, you might be tempted to cut up your cards and close your accounts. And while this is one way to deal with credit temptation, it isn’t practical. Modern life relies on non-cash transactions, so you could make your life harder by taking these extremes to stop overspending.

A far more realistic approach is learning how to use a credit card and line of credit responsibly. This way, you can reap all the benefits without any of the consequences of credit today.

Pros of Having Credit

Let’s understand why you might rethink canceling these accounts. They come with many financial advantages.

1. They Provide a Safety

What do most people do when they face an unexpected expense they can’t ignore? They reach for the plastic in their wallet.

Should these cards be maxed out, they might think about using direct lender online loans. These accounts exist so that you may get access to funding when you need it, provided you qualify and are approved for the online loan in question.

Even if you don’t use them for daily spending, credit cards can provide a safety net for when things go off track. You can use them alongside direct lender online loans and lines of credit to avoid falling short of what you need.

2. Some Accounts Earn Rewards

Depending on your credit card account, using this account pays off. You might earn cashback on every dollar you spend. You can use this cashback money to purchase essential expenses and other purchases you would ordinarily pay out of pocket. 

3. They May Be the Only Way

Cash used to be king back in the day, but in today’s ultra-digital world, you need a credit card to access many financial services. Without one, you may not be able to reserve flights, book rentals, or even shop online safely. 

Cons of Having Credit

While there are some benefits to relying on credit, it’s important to know why it can be risky for some people.

1. You Spend More Than with It

Studies show people who use credit cards are more likely to spend than those who use cash. As much as 409% more, according to the Federal Reserve Bank of Boston. A key finding of their Diary of Consumer Payment Choice report shows the average value of a cash transaction was $22, while the average non-cash purchase was $112.

Another study shows that credit can bump up the price tag even when you’re dealing with smaller prices. Mcdonald’s found that people buying their food with a card usually spent an average of $7 to a cash buyer’s $4.50.

2. You Might Not Be Aware It’s a Problem

The reason why it’s so easy to spend more with these accounts is how you spend it. With cash, it’s an immediate physical loss. You have to hand over paper bills and coins, and you notice their absence right away.

When you shop with a credit card, the purchasing experience is a little different. You access invisible credit that may have a large limit. You don’t feel the loss of this transaction in the same way as cash, so it’s easy to lose track of how much you’ve spent.

To make matters worse, MIT research shows credit cards stimulate your brain’s reward center, which can encourage even more spending.

3. It Costs You Money

Like all lenders, credit card companies apply interest and finance charges to your outstanding balance. If you don’t pay it off in full by your due date, these fees compound what you owe and increase the cost of individual expenses. Shockingly, these charges don’t count towards the reason why you spend more with credit. You spend more before interest even gets involved.

Do You Need to Cut Out Credit Altogether?

You’ll need to weigh the pros and cons to decide whether canceling these accounts is worthwhile. For a very small group of people, it might be the only way to put stop spending. But for the majority of people, there’s a middle ground.

5 Strategies to Use Credit Responsibly

Using these accounts responsibly is something you can learn. These five strategies can help you approach credit as a financial tool.

1. Use a Budget

It’s easy to overspend on credit if you don’t know your hard limits. Create a budget to list your expenses, and make sure you have enough income to cover all your bills, savings, and fun spending. Keep these limits in mind, using your card only on approved expenses in your budget. This forces you to use credit like it’s cash.

2. Pay Off Your Balance Each Month

To avoid paying extra interest and fees, don’t rely on the minimum payment; always pay off your balance in full every month. 

If you had to rely on a line of credit in an emergency, you might not have the cash to do this. Relying on the minimum in emergencies is okay, just make sure you have a plan in place to pay off your debt as soon as possible.

3. Remove the Card When You Don’t Need It

If you find it hard to resist putting impulsive buys on plastic, simply remove these cards from your wallet. Only bring them out for planned and budgeted expenses.

4. Assign it to Regular Bills

If you’ve taken your cards out of your wallet, you can still reap the benefits of cashback and other rewards by assigning them to regular bills. This way, you’ll use this account on fixed, budgeted expenses; however, you won’t carry around the card where you may be tempted to use it on things you can’t afford.

5. Delete Saved Accounts

Like many people these days, you may not be making the majority of your purchases in person anymore. Before you visit physical stores, you might hop online for groceries, takeout, household items, clothes, and more.

Deleting saved account information deters you from making impulse purchases online. Rather than clicking buy now and immediately checking out, you’ll be faced with having to fill out your contact and payment details. This might be enough of a barrier to stop you.

How Will Your Relationship with Credit Change?

Now you know how credit influences your spending – for better and worse. Being informed can help you decide whether you can use these accounts responsibly, or if it’s better to close these accounts.

Ajeet Sharma, the founder of Financegab and a well-known name in the field of financial blogging. Blogging since 2017, he has the expertise and excellent knowledge about personal finance. Financegab is all about personal finance which aims to create awareness among people about personal finance and help them to make smart, well-informed financial decisions.


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