Reduce Credit Card Use

According to this recent L.A. Times report -

Consumer borrowing increased at an annual rate of 10% in November,the largest jump in a decade… 

Outstanding credit card debt increased 8.5% in November… (emphasis, mine)

It appears that folks are using credit cards more than ever – and outstanding balances are increasing.

For more than seven years, here’s how I have reduced (and almost eliminated) my use of a credit card:

I live on a budget.

If we eliminate unplanned-for spending, we can eliminate unplanned-for borrowing.  At the beginning of the month, I know how much money I am going to spend and I know where I am going to spend it.  Some portion of credit card use results from poor planning.  Eliminate the poor planning, and we eliminate this type of credit card use.  I use a zero-based budget to manage our household finances and an irregular income budget to manage business finances.

I use online banking to pay monthly bills.

Instead of charging my bills to a credit card, I simply pay (the majority of) my bills from my online bank account.

I pay cash for everyday purchases.

I have mentioned it before, but it bears repeating.  I use the envelope system to manage my cash.  It works and is simple to use.  Again, if the goal is to reduce credit card use, the envelope system is a great tool.

I use a credit card only for reservations, not for payment.

I have used a credit card, on many occasions, to reserve a hotel room.  At the end of my stay, I pay with either cash or debit card.

I still write paper checks.

Yes, I know that I am a Luddite, but I will occasionally write a real, old fashioned, paper check.  I will do this when I give offering at church or when I need proof-of-payment for daycare or some other service.

I use a debit card when necessary.

There are some purchases (think online shopping) that really do call for either a debit or credit card.  Rather than worry about identity theft, and the loss of all of the money in my checking account, I have a dedicated secondary checking account, attached to my debit card, and I use that account for all online purchases.  When I create my budget, I allocate necessary funds to the secondary checking account and use the debit card for online purchases.  It’s not much of a hassle, and it eliminates the unnecessary temptation to use my credit card.

If I had to use a credit card -

I would only use a credit card to pay for budgeted items.

I would pay a credit card off – each month – in full.

I would refuse to use the card, simply to get a discount, points, or a reward.

I would consider the potential long-term impact of my short-term decisions.

When I combine the use of online bill pay, a debit card for online purchases, and cash for everyday purchases, there’s not a whole lot of room left for the use of a credit card.  Instead, things are simple to manage and I don’t have to add to any increase in those statistics.

Credit cards aren’t evil.  They’re neither good nor bad.  They do, however, provide an ease-of-use that can quickly wreck a budget.  I stick to my system, keep things simple, and rock on.

One side note:  I am glad to see that certain credit cards are beginning to offer longer-term zero-percent interest deals.  We used one of these deals when paying off our debt, and it significantly reduced our overall interest charges.

One final note: I do have a couple of credit cards, but I rarely use them.  Once every few months, I’ll charge a tank of gas or buy some groceries, and then pay the thing off.  I do this simply to have some limited activity on the cards.  I have monitored my credit score for several years and everything looks just fine.  There was a time when I was staunchly anti-use-of-credit card (and, I still think the world would be just fine without them), but now I’m more anti-over-use-of-credit card.  I’ve mellowed a bit in my old age.  The key is to be informed and responsible.  Rock on!

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7 Responses to Reduce Credit Card Use

  1. Tony says:

    Very wise advice. As a nation, we are drowning in credit card debt. Now is the time to get out of debt and stay out. With the possibility of unemployment looming over so many heads, it is the only safe way to live.

  2. Kaylissa says:

    Scary to think folks may be back sliding into bad habits. On the other hand, there are so many out of work for so long, maybe they have no other viable alternatives. Still, sad, no matter how one looks at it.

  3. Ben Mordecai says:

    I’m not sure I understand the allergy towards credit cards and especially rewards.

    In my opinion if there was a form of payment that would give you 1% off of everything you purchased in addition to any other discounts, why not take advantage of that?

    If you spend $15,000/year that means you get $150 just for using one payment method over another.

    Additionally the risk involved in using a credit card is way lower than a debit card. If you mess up with a debit card only one time, causing you to overdraft, the bank will rearrange your purchases in descending order, causing you to overdraft 3 to 5 more times, at a $35 convenience charge, that $4 mistake becomes a $175 mistake.

    Contrast this with a huge mistake on a credit card, say spending $100 more than you have. When you get the bill you have about 20 days to come up with the $100 that you didn’t have. If you still can’t come up with it, even if you have a terrible interest rate like 26%, that comes out to about 2% per month, or $2.

    I travel a lot for work and I can put my expenses on a personal card and get reimbursed. When all is said and done, some trips come out to be $2oo0-$4000, which means $20-$40 per trip.

  4. NCN says:

    Ben,
    Thanks for your comment. I have been living without regular use of a credit card for more than 7 years. I don’t miss the rewards, and I’ve never had to deal with overdraft fees. When we chose to stop using credit, it forced us to be responsible with both cash and debit use. Good folks can disagree (and lots do), but this is what works for me – and I think it would work for lots more, especially those struggling to break the borrow-pay-borrow-pay cycle.
    -NCN
    (Oh, I checked out your website. Awesome!)

  5. Ben Mordecai says:

    The most important thing is that you pay attention to treat your money responsibly and you know what methods work for you.

    I have never been one to carry a balance on my cards so that’s not a mindset that I have really had, but you’re right about that buy pay cycle.

    Thanks for checking out my website, I’m glad you enjoyed it!

  6. Srinivas Muthadi says:

    Very wise advice. A large no. of problems in our personal lives could be solved being judicious with spending money.
    When easy money is available, it is very difficult to control our urge to buy things which are beyond our reach. That is exactly what these credit card companies exploit.
    The system is like that. Staying out of it altogether may not be advisable. I use credit cards for most of my transactions and pay the bill promptly. No rolling over. I got no. of goodies, at the expense of some other reckless person, though.
    Beat these companies in their own game and bleed them to death!

  7. Shailaja says:

    Thank you for the wise advise. I am using these credit cards for more than 10 years now and till date not able to come out of it. Truely the budget goes upside down with these tempting cards in hand. Human tendency we like we want and these cards make it easy to have. I am so far successful to discard all my cards except one and I wish to come out of it too. I have always paid my bills in full every month yet, its a big tension month after month prior to pay these bills make our account for coming month full. : – ) Do pray for me to be successfully out of these CC use and be on own with limited money in my pocket every month after month. Thank you again.