Use a debit card instead of a credit card and watch your spending go down
The Internet has released a multitude of: PayPal, CashApp, Google Pay, … The list is lengthened increasingly. And even remain hugely popular, for good reason. They offer easy financing for large purchases, simplify payments almost anywhere, and can .
However, the convenience and features of credit cards carry risks, including . Interested in can be brutal, but the risk of overspending can be just as severe. Several studies showed that credit cards increase consumer spending. If you’re looking for a way to cut spending, find out why limiting your credit card use could help.
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Why should I consider using my credit card less?
In short, to avoid overspending. When you use a debit card, you’re using money you already have – you’re living within your means. When you use a credit card, you’re not spending your own money, you’re borrowing someone else’s to make your purchase.
The amount of money you have in the bank (or on your) decreases immediately when you spend it, a psychological factor that can counter the urge to buy more than you can afford.
With a credit card, the actual payment for the purchase is delayed and this payment can be postponed again and again. This “decoupling” of purchase from payment can make psychologically easier to spend more money and lead to overspending and growing household debt.
While credit cards can decrease the “payment penalty“, they could also reward willingness to spend.
A brain study conducted by MIT researchers seems to support the idea that credit cards can “press the accelerator pedal” on spending. Scientists have found that credit card spending activates a part of the brain called the striatum that’s linked to reward perception and addiction. Similar purchases made with debit cards or cash did not have the same impact.
Your credit card purchases aren’t as obvious as your debit card purchases
When you use a debit card, your purchase will shortly appear in youryour activity and account balance will decrease by the amount you spent. On your online banking account page, each debit card purchase will be listed along with all of your other withdrawals and deposits, including checks you’ve written, Zelle transfers, direct deposits, and electronic bill payments.
And then comes a monthly sum for your credit card payment. Of course, every credit card usage is listed in your credit card account, but that’s one step outside of where you make actual payments and receive income. A regrettable impulse buy is more likely to encourage thinking about your spending when it’s listed just below your monthly rent payment.
In a 2008 studyresearchers Priya Raghubir and Joydeep Srivastava found that consumers are likely to spend less when considering each item purchased, rather than the total amount of a group of disparate items.
When is a credit card better than a debit card?
First, a credit card is probably your best option when you don’t have funds available for a purchase. If you can pay off your debt quickly and need money now that you don’t have it, a credit card is your answer.
Second, use a credit card if you want rewards on your spending. There’s a wide range of options for rewards credit cards, focused on spending categories like travel, dining, and gas. If you are disciplined with your spending and your budget, rewards cards can offer significant returns and benefits.
You’ll also want to use a credit card for occasional purchases if you’re trying to build up credit. Paying off credit card debt on time is one of the easiest ways to build a good credit score.
Finally, if you are making a large purchase or buying from an unknown seller, a credit card will offer more purchase protections than a debit card. Credit cards often extend warranties by a year or more and include better protections against fraud.
While credit cards offer many benefits, understanding the overspending risks associated with credit cards will help you decide when to leave them in your wallet. Whether or not you reduce your spending by decreasing your credit card usage will ultimately depend on many factors such as your personal behavior, psychology, and financial situation.
To learn more about credit cards, seeand find out what is considered a now that .