Many people have problems managing their credit card spending. But while there’s certainly no shortage of advice on how to cut back spending, some of these tactics may have limited value in the real world.
For example, one common piece of advice is to cut up your credit cards. Cutting up the card will certainly help you curb your spending, but it precludes you from using your credit card in situations where using cash or some other method of payment is impractical (such as renting a car or buying airline tickets).
Instead, consider the following three foolproof tactics to help you reduce the amount you spend on your credit cards each month.
Analyze Your Spending. One of the biggest problems in changing spending behaviors is not knowing how you actually behave. For example, if you don’t realize that you spend $150 per month on fast food using your credit card, then it’s difficult to change that behavior. Knowledge is power, so review your monthly statements, as well as any annual statements that your credit card company may provide, in order to identify areas you can work on.
Start Using Cash. Another technique for cutting back on your credit card spending is to start using cash. For example, if you’ve discovered that you spend $150 per month on fast food, and you like to get that amount down to $50 or $100, then withdraw that amount in cash from your checking account at the beginning of each month. Put that cash in a small envelope that you keep in your wallet or purse, and buy all of your fast food for the month using only that cash. When you run out of cash, you can’t spend any more on that expense for the month.
Studies have shown that when people are forced to handle cash and use that to pay for their purchases, they spend less on average on each shopping trip. Using cash creates a much more immediate link in the financial consequences of each purchase decision, and gets you to spend more time considering whether you actually want to buy.
Don’t Allow Online Merchants To Store Your Personal or Credit Card Information. Once you’ve analyzed your credit card spending, you may find that you’re spending more than you’d like online. One reason this behavior happens is that online merchants often make it easy for you to spend. By giving you the option of storing your credit card information so that you don’t have to enter it to make future purchases, the merchant breaks the mental link that you’d otherwise have when you buy. Taking out your wallet at a store reinforces the notion that you’re spending money, and gives you a brief opportunity to reconsider some of your purchases.
In contrast, when an online merchant already has your name, shipping address and credit card information, you can find yourself spending money with little more than a mouse click. You might think it’s a hassle to enter all of this information every time you want to make a purchase online, but that’s the point. When it’s too easy to buy, you may be more likely to spend too much.
Keeping your credit card spending in check will make it significantly easier for you to reach your long term financial goals.
Many people have problems managing their credit card spending. But while there’s certainly no shortage of advice on how to cut back spending, some of these tactics may have limited value in the real world.