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!