I need to stop using credit cards.
There, I said it.
As I embark on my journey to FI as a “late starter” post divorce, I quickly realized that using credit cards is the fastest way to derail my journey to FI.
I’m in the process of retraining myself how to live a frugal life. For 17 years I’ve been married to a partner who chose to “spend first, decide how to pay for it later”. And this mentality, coupled with an unwillingness to change despite presenting her with evidence of how our spending was stealing from our future, is a primary reason we are now separated.
But as I move forward into my post-marriage financial life, I’m trying to decide how to best manage my finances.
In the past, I put all our spending on credit cards and then made a large payment later in the month. Sometimes this was enough to cover the balance, but more often then not, it wasn’t.
In my first few weeks of living a separate life financially and managing my debt payoff plan, I’ve realized that continuing to use credit cards will make it more difficult to achieve my ultimate goal of paying down all my debt by the end of the year (2024).
So, with the exception of some fixed expenses for the kids activities, I have decided to go cold turkey and cut my credit cards out of my life.
Here are ten reasons why I’ve decided to stop using credit cards.
1. Using Credit Makes it Difficult to Budget
I personally use YNAB for tracking my everyday spending. While you can use YNAB with credit cards, it is much easier to use the software if you are NOT spending on plastic.
When you are spending money on a credit card, and you don’t have a firm grasp of your monthly spending, it is difficult to budget and plan where your money is going. But if you are spending out of your debit card only, then you know how much money you have left and available to spend.
2. Using Credit Cards Requires Self-Control
If you went out to dinner but only had $50 in cash, chances are you will do your best to scan the menu and budget your spending mentally before you placed your order. You likely would pass on an appetizer and consider ordering water instead of an expensive glass of wine.
But if you were using a credit card, it becomes much easier to order freely without thinking about the financial consequences. While credit cards require intense self-control, they actually work to discourage self-control.
3. You Are Less Likely to Buy Something “on impulse”
Impulse shopping is the worst kind of shopping. And with the ability to buy things online anytime anywhere, it is incredibly easy to go overboard on your shopping budget for the month. Think about the last time you went to Target for a $5 tube of toothpaste and walked out with $50 worth of “needed” supplies. It happens all the time.
By paying cash for things, it becomes psychologically harder to part with that money. As I write this, I have $27.10 left in my “spending” account. This is the account I use to pay for groceries and other things that come up during the month. If I don’t have money in that account, then money is not available for me to spend.
I also have accounts for recurring bills, income, and debt payments. These are accounts that do not have a debit card connected to them and which I use to make my auto-withdrawals for my monthly bills (or income). By working my financial accounts this way, it becomes easy to see how much income I earned during the month (I’m self-employed) and how much I spent. Once my credit cards are paid off, the “debt payment” account will become my “retirement savings” account.
What is most important about this system is that the spending account is the source of truth. If I don’t have money in that account, I can’t assume I have money on my credit cards to spend.
4. Carrying a Balance is Expensive
Carrying a balance on your credit card after the due date means you will be paying expensive interest rates. The interest rates on my credit cards vary between 20-30%!
This is why it is so important to pay off your credit cards as quickly as possible. Where the compounding effects of interest can help you achieve financial independence, it can also lead you to bankruptcy if you hold a balance on your credit cards.
5. Using Credit Cards Makes it Harder to Pay them Off
One of the biggest reasons I need to stop using my credit cards is because of the demoralizing effect of making huge payment on a card just to see the balance grow because I continued to use the card during the month.
To pay off your debts faster, you MUST stop using credit cards entirely. It is easy to overspend if you continue to use them while you are paying them off.
6. Higher Credit Usage Hurts Your Credit Score
The higher the balance on your credit cards, the higher your credit utilization rate. The higher your credit utilization rate, the lower your credit score.
Lower credit scores mean you will pay more for insurance, mortgages, car loans and a host of other financial products. Also, if you are interested in travel hacking, many of the best travel credit cards require a top credit score which is impossible to obtain if you are using a lot of credit.
7. Bad Financial Habits Can Put Your Relationships at Risk
As I mentioned before, one of the main reasons I’m separating from my spouse is that we were not aligned financially. There were other reasons as well, but that was the biggest factor by far.
Sidenote… Notwithstanding the fact that I’m not even remotely ready to date on an emotional level, I’ve also decided that until my financial house is in order and all my debts are paid off, I refuse to re-enter the dating scene.
8. Having Debt Can Lead to Bankruptcy
Many people believe that “bankruptcy will never happen to me”, but if you spend recklessly without a plan to pay for what you buy, you are increasing the likelihood that you WILL end up in bankruptcy court.
A bankruptcy will stay on your credit report and limit your financial options for up to 10 years.
9. You Spend 12-18% More By Using a Credit Card Than Paying Cash
If you are serious about getting out of credit card debt, then here is another reason you should stop using credit cards. You will spend more on credit cards than you will spend on your debit card.
People that use their credit cards for everyday spending (even if they pay off the balances each month) will spend, on average, 12-18% more than people that spend using a debit card or cash.
I totally believe this. As I said before, it is so much harder to keep track of your spending if you are using a credit card than if you are spending directly out of your bank account.
10. Carrying Credit Card Debt is Stressful
Lastly, as someone who has had to worry about how they will pay the bills each month, I can tell you that managing debt is extremely stressful. I am very much looking forward to the day when the only bills I will HAVE to pay are my rent/mortgage, and my utilities. Everything else will be discretionary.
Carrying multiple credit card balances leads to added stress trying to manage payments, avoid late fees and penalties, and worrying about when the credit card company will raise your interest rates.
If you can’t afford to buy something, you will be way better off by saving up the cash and then paying for it on your debit card.
Final Thoughts – Why You Should Stop Using Credit Cards
If you are currently carrying a balance on your credit cards that you are unable to pay off each month, then I highly recommend you STOP using credit cards and use a debit card or cash only.
Are you currently chasing FI or trying to get out of debt? I would love to hear from you. Feel free to leave a comment below and let me know if this article has been helpful to you.
