When is it OK to use your credit card? Some might say never, and with consumer debt topping 1.7 trillion dollars this year, maybe they’re right.* But why are credit cards so bad, and is going all cash really the answer?
Credit Cards Distance You From Your Spending
People spend more when they pay with their credit card. It’s inevitable. When you pay with cash, you feel every penny. You only have so much cash on hand and each dollar you spend is a dollar less in your pocket. This direct connection with your spending keeps things in perspective. Spend $50 bucks on eating out this week, and you’ll feel the emptiness if your wallet by the end of it.
In contrast, when you pay with a credit card the payment happens out of context. You spend $5 on a sandwich one day, $6 on a burrito the next, and nothing adds up. Not until the end of the month when you’re hit with a $300 bill that you don’t understand, and may not have the money to pay in full.
Cash Can Be Inconvenient
Switching to just cash can be a great solution, bringing you back in touch with your spending. But for some it can be inconvenient or simply impractical. You can’t purchase anything over the internet –or through your smartphone– in cash, and if you make large purchases or travel, it can be a risk to carry all the cash you need.
EEBA Helps you Stay in Touch with your Spending, However you Pay
Enter EEBA. With EEBA Envelopes you can keep track of your spending regardless of how you pay. Spend $5 on a sandwich? Record it in EEBA as an expense to your Eating Out Envelope. The next day when you’re eyeing that burrito, you’ll see the $5 expense from the previous day and know whether you should spend or save on your next meal.
Even better, as time goes on you’ll start to see trends in your spending. Maybe you’ll see an area where you want to cut back, or maybe you’ll realize you have the room in your finances to start that project you’ve been thinking about. By getting face to face with your spending, you’ll have the information you need to not over spend, and start thinking and talking about the choices that matter.
So when is it okay to use your credit card? When you’re using it with EEBA!* “Consumer Credit – G.19, Consumer Credit Outstanding“. Federal Reserve Board. Photo: Andres Rueda