So, you have several credit cards and your score is sinking because you’re having problems handling these cards well. Maybe you’re someone who shops a lot, and you just can’t take your eyes away when you see something beautiful on display. To prevent further damage to your credit score, you must know how to stop using credit cards.
Once you can stop for a while, whenever you get back to using it again, you’ll know how to manage your expenses better and improve your credit score in the end.
The first step you can take when trying to stop using credit cards is to admit that you have a bad credit card habit. When you do not use your credit card in the right way, you’ll notice an increase in interest and fees. This makes it become even harder to pay your debt. So, you credit score continues to sink further.
Below, we would look at how exactly you know when you have a bad credit card habit.
Ways to Know You Have a Bad Credit Card Habit
- When your issuer raises your credit limit, you spend more money – Some people just can’t do without spending. If that is you, then there might be a problem. Your credit card limit doesn’t determine how much you spend. In fact, when your credit card limit is raised, you should try to spend less and repay what you’ve used on your credit card faster. So, your credit score can improve.
- You pay your credit card debt late because you don’t have money – You shouldn’t use your credit card if you don’t have money to pay back. Some people have up to 6 credit cards. If each of them contain $1,000, they feel like they have $6,000. So, they spend because they think they have. With no steady source of income, they find it difficult to repay their debt. The longer it takes for the debt to be repaid, the higher the interest and fees incurred.
- You pay interest fees when you send in your credit card payment – If you’ve been spending the money on your credit card well and returning the money in no time, you shouldn’t pay interest along with the debt you’ve incurred. If you’ve started paying interest and it keeps increasing, then you should consider stopping your credit card usage.
- You use your credit card only because you don’t have enough money – When you have to use your credit card because you are low on funds, then there’s a problem. Your credit card is to be used for all emergencies and to settle all your expenses.
If you don’t have savings to fall back on, or some money for you to spend in your checking account, then you have to reevaluate your actions. Using your credit card because there’s no other place to get money from would most likely result in you paying your debt late, having interest on your debt, and ultimately lowering your credit score when you’re unable to pay.
How to Stop Using Credit Cards
As mentioned earlier, the first action to carry out when learning how to stop using credit cards is to accept that you haven’t been using your credit card the way you should. Afterward, follow the steps below to stop using your credit cards, and settle on other ways of handling your purchases.
Understand your finances –
Before you can do anything tangible to adjust your finances, you have to carefully study it. How much do you make at the end of the month? Sum up your finances from your main job, part-time jobs, side hustles, and even child support. Then, calculate how much you spend in a month. You can try calculating what you spend for three months, so you can get an estimate.
Also, you shouldn’t leave your credit card out of this. Calculate how much you spend on all your credit cards monthly. Afterward, subtract the total amount spent from your monthly earnings. If the remainder falls on a negative value, then you have a lot of change to do. Sometimes, your balance may be highly positive or near zero. In this case, you can make a few adjustments.
Ever had a budget?
It is widely believed that people who do not have a budget are those that overspend. Most times, this is true. Even if you had a budget before, I’m sure you were not sticking to it, that’s why your credit scores have gone so low. Budgeting is a valid way to stop using credit cards.
So, it’s time for you to wipe out your entire budget sheet (if you were using one before), or create a new budget sheet. Life on the Dough has a printable monthly budget sheet that will be sent to you once you register for it.
The information you gathered in the point above will be very helpful in creating your new monthly budget sheet. In this sheet, you can also record how much of your earnings you would use to pay off your debt.
Include all the compulsory expenses such as groceries, housing, repairs, transportation, and other necessary bills that must be paid monthly. Also, reserve some money for expenses like entertainment, traveling, and other expenses that are no so important.
Having a budget helps you organize your priorities and settle your bills on time. So, make sure you do not prioritize less important things over the important ones.
Although everyone can make a budget, not everyone can stick to it. So, how do you stick to your monthly budget? Firstly, you must change your mindset and be determined. Always put what you want to achieve in mind. Also, you can activate automatic online transfers to settle your bills monthly. So, you don’t feel the money leaving your account.
It’s time to start saving –
For you to be spending so much on your credit cards, it means you haven’t been saving. Have you ever heard of emergency funds?
An emergency fund is the money you save in case of emergencies. This is usually separate from your normal savings and retirement savings. An emergency fund does not take the place of a credit card, but it helps you use your card less, and if you save well, you may not need your card at all.
If you’ve noticed that you use your credit card to settle little expenses like fixing your car or paying medical bills for minor injuries, then you really need an emergency fund.
It is wise to open a high-yield savings account for your emergency fund. As you save more money, you get extra on what you’ve saved. Although you may want to have three times your earnings in your emergency fund, you do not have to go big at once (except you have the money for it). You can start by putting $1000 in the bank account. Then, you grow as you go.
Do away with your cards
Do you know that when you don’t have the credit cards with you, there’s no way to use them? So, you can hand over your credit card to your trusted friend or relatives or leave them at home whenever you’re going out. If you’re still always tempted to use your credit card, then you should even take more active steps to stop you from using them. What do I mean?
Deactivate your credit cards from all your paypal and other automatic online payments. Now that you can’t use them to make online transactions, you can destroy them.
Destroy your credit card
Destroying your credit card does nothing to your credit score and whatever debt you have in there. So, get a pair of scissors and cut up your credit cards. You can have one or two credit cards left while you destroy the rest.
Normally, it isn’t advised to close your credit card accounts because it affects your credit score in a bad way. But because you can’t stop overspending, you may have to close them. Note: You can’t close your credit card accounts if you have outstanding balance.
This is where budgeting is important. With the right budget, you can pay off your debt in a few months. Then, you can close your credit card accounts and rely on other income sources to handle your bills. Isn’t it better to be debt free and not so wealthy than have a terrible credit score while spending a whole lot of money you will still pay for?
Make the last credit card unreachable
The last credit card you didn’t destroy should be used only when it is really needed. Also, you should have the money to pay when you finally get to use the card.
There are various methods you can use to make sure that the credit card doesn’t fall back into your hands. One of the most popular methods of doing this is putting the card in a cup of water and placing this in a freezer.
Over time, the water becomes ice, and it will take hours for you to access your card when you finally decide that you want to use it. I’m sure everyone will get tired if they have to go through so much to access a card. If it is something so important, you won’t be able to wait for the ice to melt. So, you will have to go through other methods to get your money.
At the end of the day, you’ll realize that it was better that you didn’t use the credit card.
Have you tried the cash only policy?
Without credit cards, you have to find a way to pay for everything else. One method that has worked for me and every other person is cash. There’s nowhere you will go with cash that it will be rejected. Once a week, I head to the bank to withdraw an amount of money that I spend every week. The same day next week and in subsequent weeks, I withdraw that same amount of money for the new week.
You can start the cash only policy when you’ve been spending according to your budget and haven’t deviated for a while. When you only spend whatever is coming into your account, I.e. whatever you make monthly, you will be able to focus on cutting down your spending.
The cash only policy helps you stick to your budget more. Because there’s no card for you to slot into whatever opening you see and make huge purchase, you’ll know how to manage properly.
To stop using credit cards, you may have to embrace cash. You can use cash to purchase small items like groceries, e.t.c., and large items like mobile phones and laptops. But it isn’t safe to carry huge amounts of money around, that’s why you should have a debit card.
Use a debit card
I have no credit card and two debit cards which I use to handle all my expenses. So, I have no credit card debt. Debit cards are great! When you use debit cards, you stay conscious of how much you’ve made and if you’re willing to suffer by spending all you have in your account.
Unlike credit cards which give you money you don’t originally have, debit cards only rely on the money you have in your checking account. So, once it is over, it is over. Using debit cards is just like holding cash, but it is smarter to have a debit card when you want to handle a large amount of money.
Moreover, you can use debit cards with automated teller machines (ATMs). I have debit cards I can use on ATMs in various countries in the world. So, I never run out of cash even overseas, and I can withdraw cash whenever I want. This is also a valid way of sticking to your budget and to stop using credit cards.
Pay your credit card balance
Before you can stop using credit cards completely, even after slicing them into various pieces, you need to pay your balance. The longer your debt remains unpaid, the more you have to pay, and the more your credit score drops. Soon, you’ll not be able to get good loans because you don’t have a good score.
If you want to get out of debt, when paying your credit card balance, you need to pay more than the minimum payments on your account. When you finally get it settles, your score will see a boost. There are two main methods of paying your credit card balance –
Debt Snowball method –
The debt snowball method is a reduction strategy where the smaller balance is paid off first. For instance, if you have several credit card accounts, you start by paying off the one with the smallest balance first. Then, you’ll end your debt payment on the accounts with the largest balances. This is the method mostly used by people with credit cards.
Debt Avalanche method –
This is the exact opposite of the debt snowball method. It’s a pyramid method. You pay off the credit card accounts with the largest interest rate first. I usually recommend this method to people who ask because it doesn’t start easy and then end difficult. It starts on the hard end, and then you move to easier stages until you’re free. This even helps you pay everything off.
With the debt snowball method, you could get exhausted before you even reach the difficult parts. Then, you’ll be so angry at yourself because you can’t fix your debts. Whatever method you use, make sure you’re comfortable with it and can comfortably pay up the balances on your credit card accounts.
Keep track of your progress –
Every week or month, keep track of how better you’re getting at not using credit cards. This will encourage you to do better. Calculate the extra expenses you’re spending on every purchase and you should try to find ways to reduce them. For instance, if you are spending $500 on groceries monthly, you can try to cut it by $20 every month until you’ve cut it by $100 or even more. This would help you put more money into your emergency fund.
You can record your progress on a new spreadsheet, or on a budgeting app such as Mint.
Credit cards are not bad things. But if you do not use them well, the credit card companies will use them to make money off you. Credit cards are used to show that you have a solid history of paying off your bills or debt, so you can be approved for other forms of credit or loans, i.e if you use the cards well.
But if you notice that things are going wrong with your credit card usage, you need to how to stop using credit cards.
The steps given above should be followed if you want to curb your bad spending habit. Calculate how much you spend monthly, make a budget, save, and limit the use of your credit cards. Always remember that it is better to get rid of your credit card than to have debts that are difficult to repay.