Many a financial management course starts with a once startling exercise: the chopping of the credit card. Other similar techniques exist, and the primary purpose of such acts is to prevent consumers from using credit cards. Whether chopping or freezing these bits of plastic in a block of ice, many financial management courses recognize that consumers must control their spending, even if it means restricting access to the card or eliminating it entirely.
James McKay struggled with this temptation significantly. “For me, the credit card was like free money,” he said. “And as a computer graphic designer, competing against college grads who are willing to do the same job for a lot less, that just wasn’t a luxury I could afford.”
McKay attended multiple financial management courses to get his spending under control. Spending with money was not the problem. Unfortunately, in his business, he had to have both paypal and credit cards. While in most cases, individuals can live just fine without credit cards, some individuals like McKay have no choice. “The credit card was my enemy,” McKay said. “I knew if I could get rid of it, I wouldn’t spend as much. But I never could.”
The solution for McKay though was not to lock up his credit card but rather to change his perspective on it. So long as he viewed the credit card as an enemy and something to resist until he gave in, then he was not using it constructively. Such a perspective makes it very difficult to avoid giving in to the siren call of “get it now, pay later.”
But what if your credit card was not your enemy? Through taking definitive steps, you can change your credit card from an enemy into an asset.
The first step is in how you look at your credit card. You have to stop looking at it as a way to spend money you do not have. Remove the concept of a credit card completely. Think of it instead as a debit card. You can only use it if you have the money in your bank account.
So with the exception of emergencies, if you don’t have the money, you don’t put it on the credit card. Remember that. It is not free money.
Most credit card companies do like it when you max out your credit card. They want you to utilize the full amount, and they prefer it when you only pay the minimum payment because then they get all that wonderful interest.
However, as more attention has been focused on fiscal responsibility, credit card companies have started participating in encouraging habits that promote it. Online services include options like inputting your target spending amounts, rejecting purchases over a certain amount, refusing payment on purchases in certain categories, and reports at the end of the month.
When you register for an online account, go through everything on the site. Sign up for all of the checks and balances that you can. As a general rule, you should not restrict payment on items like medical bills or similar emergency items. Ideal categories to restrict spending are clothing, entertainment, and electronics.
Most people just put the balance on their credit card and keep going. If you’re doing that, then you need to stop right now. This habit can lead to careless spending. You might fully believe that you have not spent all of the money you budgeted out when you actually have.
Whenever you make a purchase, you need to record it in the register and subtract that amount from your budget total for the week. Forcing yourself to track each charge allows you to see where your money is going. As you subtract it out, it takes away the feeling of free money.
One of the most important things you can do is pay off the balance of your credit card each month. When you track how much you have spent with your credit card, you will easily be able to do this. Doing this allows you to avoid interest rates, which can be over 25%.
The added benefit of maintaining a check register for your credit card purchases is that when it is time to pay the credit card, you can double check to make sure that all of the charges are accurate.
More credit card companies now offer point systems. For each dollar you spend, you get a certain percentage back as points. The percentage varies from 1% – 10%, and it may depend on your standing with your credit card company as well as the length of time in which you have been a member.
The point system can help you save a little extra money, but make sure that you do not spend extra just to get the points. The points aren’t worth a bad credit history.
Credit cards are not your enemy. How you view it could be your problem. Look at your credit card as a tool to be used. If you still struggle with managing your credit cards, you may need to seek personal financial counseling to address the root of the problem.