Credit cards are highly valued by some and criticized by others.
Unfortunately, credit cards have the potential to be detrimental to a person’s or family’s finances (and could be the main cause of them being poor).
But when used correctly, they can be money-making machines! We LOVE our credit cards because they make everything we buy 2%, 5% or even 10% off! In one calendar year, we actually made $1,400 just because we chose to use a rewards credit card instead of debit.
So why are people afraid of credit cards?
For starters, Dun & Bradstreet found that people spend 12-18% more when using a credit card rather than cash.
If increased spending leads to spending more than you make, then you are guaranteed to start slipping into debt.
It’s so much of an issue that credit cards have pretty much become synonymous with debt–as if you cannot have one without the other.
This is not the case. You can absolutely own a credit card (or multiple credit cards) and have $0.00 in debt!
You just need to be aware of the credit card pitfalls so you can avoid them and thereby, avoid debt.
Let’s see what it is about credit cards that makes them so “dangerous.” When you know why credit cards cause people to get into debt, you won’t fall for their “debt traps.” Instead, you will be taking advantage of the credit companies by having them PAY YOU to use their cards!
Why Credit Cards Are So Much Easier to Spend than Cash
1. Cash back offers entice people to spend extra money
Instead of considering the cost of an item, some individuals may only think about the excitement of getting cash back. For instance, people often fall into the trap of paying for a pricey hotel or rental car just because their card has an awesome cash back bonus.
My grandma is actually a great example of choosing credit card cash back over better savings.
Every Christmas, she loves to rack up points on her credit card. Last holiday season, my sister had an exclusive 40% off discount to my grandmas favorite retailers, but she refused to use the discount.
The reason? The 40% off discount wasn’t available to her if she used her credit card. It was more important for her to earn points (only 1% back) rather than save 40% off the entire purchase!
This mindset (albeit extreme) can happen to any of us.
It’s easy to get caught up in the thrill of racking up points and forget that saving money is the real mission.
No matter how good an offer sounds, it’s important to remember to calculate which offer saves you the most money possible!
2. It is much easier and more convenient to use a card versus cash
Paying with plastic is a less emotional experience than handing over a wad of cash.
It doesn’t feel great to lay down a $100 bill at a restaurant–especially when that’s all the money you have in your wallet! Paying with a credit card, on the other hand, isn’t that bad. I mean, you are getting some points back after all.
There is so much more pain associated with forking up cash than paying with a card, and that’s why people spend less money when they don’t own a credit card.
Let’s say you want to grab a coffee real quick and you only got $5 in your wallet. When you look at that $5.00, you start thinking about your money. You think, “man, I had $100.00 in here at the beginning of the week. Maybe I’ll skip the coffee since I’m really running low on cash.
Let’s cover the same situation, but this time you only have a credit card. If you feel like coffee, you’ll go buy it. It doesn’t matter if you’ve spent $200.00 throughout the week because nothing is triggering an emotional response.
It’s simply easier to buy things with a card than cash and that is something you 100% need to be aware of when using a credit card.
How do I stay out of credit card debt?!
There is only one solution to never going into credit card debt and giving your hard-earned money to the credit card companies: GET IN CONTROL OF YOUR FINANCES
If you don’t have a budget in place, there is absolutely nothing stopping you from spending more than you can afford. You haven’t a gauge to tell you if you’re spending your money a little too quickly or if you have plenty of money for the rest of the month.
People plummet into credit card debt because they are simply not keeping their income over their expenses.
Nerd Wallet recently did a study showing the average indebted U.S. household carries $16,061 in credit card debt…
The sole purpose of getting in control of your finances is to ensure you never spend more than you make (i.e NEVER GO INTO DEBT).
If you want to start making money with your credit cards and build an 800+ credit score then you need to budget
It’s time to stop plummeting into debt, living paycheck to paycheck, and dealing with the anxiety that comes with having no control over your finances.
This will not be your reality anymore if you simply keep your income over your expenses. You can do that!
Frugal Living and Budgeting Resources:
- How To Stop Living Paycheck to Paycheck Immediately
- Best Frugal Living Tips
- How to Live Frugal on One Income
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A budgeting fanatic and a frugal living lover! We want to share our budgeting techniques because of how much they have improved every aspect of our life! We teach the ultimate way to budget so you can save tons of money, eliminate debt fast, and achieve guilt-free spending!