Overspending on your credit cards?

How to break that habit.

Mindset is one of the most interesting topics to me. Especially when it comes to how we earn, save, spend and invest money.

One particular subject has been the topic of conversation recently in my Empowering Women Financially Facebook Group. The question arose, “Why do I spend more money when I use a credit card?”.

This habit of putting purchases on a credit card is usually because of three reasons. One, convenience. You are ordering something online and don’t have the option to pay with cash. Two, necessity. You are out-and-about and don’t have any cash with you or you’re buying something that costs more than the cash you have on hand. Or three, you’re trying to earn some rewards that your card promises. That may be points, cash back, airline miles, or whatever your card may offer as an incentive.

One popular study conducted by Dun & Bradstreet found that people spend 12-18% more when using credit cards instead of cash. The idea behind that is that people don’t see the money they route through cards as “real money”.

There’s a reason financial mentors will suggest the “envelope system”. This is not something Dave Ramsey came up with, this has been around for a long, long time. Your grandmother may not have had an “envelope” system, but I bet she kept cash stashed around the house in a coffee pot, under the mattress, or some other place in her house. It’s the same concept.

There’s something psychological that happens when you hand over cash from your wallet and see the stack of bills start to dwindle. You don’t get the same psychological effect when you put items on a card.

If that resonates with you and you’re reading this saying, “Yes! OMG that’s me!” then I have some suggestions for you.

First, pay cash (or available cash in your checking account) for items like gas and groceries. Also, if you’re a spontaneous shopper, or like to go to the movies, out to eat, or stop at Starbucks frequently, use cash for those purchases as well.

Second, every time you do put a purchase on your credit card, go in and make a payment on that card. For example, if you do spend $60 on a tank of gas, when you get home transfer $60 from your bank account to your credit card to cover that expense.

Another way to break the habit of spending more on your credit cards every month is to pay the current balance on your credit card when you get paid. If you get paid on the 1st and the 15th, then pay the balance of whatever is currently on your credit card the first and the 15th.

A good rule of thumb is to only charge what you would have purchased with cash and to pay off your card in full each month.

Lastly. you can put a post-it note on your credit card. Your post-it note can either be your budget if you have one - and you should. Or it can be a note to yourself. “Is this a need or a want?” “Don’t forget to pay this off when you get home.” Or something else that will resonate with you. Or maybe you want to make a list of things that are “allowed” to be charged on your card. If you’re using it for something not on your list, then don’t use it.

A budget is just a conscious spending plan. Use your credit cards in the same way. Be intentional and spend consciously and you won’t get a surprise bill at the end of the month.