If you’ve ever wondered how your peers seem to afford things that are out of your financial reach, the answer might surprise you. While some might pay for that new smartphone or vehicle through a secret second job or savvy saving practices, many people utilize credit to finance luxury purchases. While the majority of national household debt is comprised of home mortgages, a significant and rising percentage is made up of car loans and credit card purchases.
Credit Cards Make Spending Easy
The widespread use of credit cards can be attributed to how easy they are to use. Instead of having to carry multiple bills or coins, you can leave home with a single sliver of plastic. And monthly statements available online theoretically make tracking spending much easier than keeping a personal itemized list.
But the convenience of credit cards comes at a price. Studies show that people, even typically frugal ones, tend to spend more when using cards rather than cash. Unlike credit cards, debit cards deduct money from your account immediately. However, psychologically, it’s still much easier to thoughtlessly swipe that piece of plastic as opposed to handing over your hard-earned paper.
Even the usefulness of that monthly statement can be deceptive, as it will tell you when and where you spent your money, but won’t reveal what exactly you bought at that location and how you spend your money.
Cash Can Keep Spending in Check
Carrying cash instead of a credit card limits your spending to whatever you can buy with what’s in your wallet or can take out of an ATM. Instead of comparing numbers on a monthly statement, you can see your available resources in front of your eyes, giving you an immediate sense of what you can and can’t afford.
The greatest benefit of using cash over credit is avoiding debt. While many people rationalize their large, non-essential purchases by telling themselves that they’ll pay them off later, debt can quickly spiral out of control and take a toll financially and emotionally. Restricting your spending to cash eliminates this problem, as you can’t spend what you don’t have.
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