On a similar note...
On a similar note...
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Credit cards can be a great way to pay for your day-to-day purchases. They’re convenient, safe and accepted almost everywhere. Plus, you’ll have the opportunity to build your credit score and earn rewards. But because they make it easy to take on high-interest debt, credit cards also come with a lot of responsibility.
If your credit card is causing you stress, that might be a sign that you’d be happier sticking to cash or a debit card when making purchases. But before you cancel your credit cards and cut them to pieces, it helps to weigh their pros and cons. Ultimately, they may not fit your spending and budgeting habits. But a few small behavior tweaks, or a new card entirely, could change how you feel about credit cards.
The case for ditching your credit card
Often, credit cards simply don’t feel like “real” money, and that can lead to overspending, ever-growing debt and the perpetual feeling of being in over your head.
By their very design, credit cards make it easy to spend well beyond your budget. Every month, you can charge up to the credit limit and reset that limit just by making a modest minimum payment of a small portion of your bill. But whatever balance is left begins accruing interest, often at double-digit rates. And if you accidentally miss a payment, you could be on the hook for a late fee, plus see a dip in your credit scores.
That dip can even become long-term damage, which can make it difficult to qualify later on for other credit cards, loans including mortgages, or even rental homes.
If you find it difficult to control your spending, afford your credit card bills or make on-time payments, the freedom and flexibility of a credit card may be exactly what’s keeping you in financial trouble. That’s when ditching it and going back to the basics can help you feel more in control. Here are just a few strategies to start with:
Rework your budget with a system like the 50/30/20 budget.
Stick to cash with the envelope method.
Repay your debts with the help of a debt repayment method, like debt snowball or avalanche, which are systems that help you organize and prioritize monthly payments while remaining in good standing with your creditors.
Seek help from a nonprofit credit counseling agency.
The case for keeping it
Compared with debit cards and cash, credit cards offer consumer protections that can help save you money when things go wrong:
Fraudulent charges: If someone makes fraudulent charges on your credit card, you can get the money credited back to your card quickly once you report the activity. Federal law limits your liability, and most issuers completely waive your responsibility to cover stolen funds. With a debit card, the longer you wait to report suspicious charges, the more you’re liable to cover those charges out of your own pocket. And if your cash is lost or stolen, it’s gone forever.
Purchase protections: Many credit cards will refund your money if a purchase arrives damaged, a package is lost or stolen, or a merchant won’t issue a refund. Some purchases are eligible for an extra year of protection beyond the manufacturer’s warranty, and some cards even offer price protection, which can refund you the difference if the price of the item drops after you've bought it.
Because of these features, it can be worth keeping a credit card for specific purchases where you want that extra layer of security. For everyday spending, you can rely on cash or a debit card.
Nerd tip: A note about credit card rewards: If your card earns cash back or points on your spending, these can be valuable additions to your monthly budget, helping you defray costs or save up for trips — but only if you're paying off your balance each month. Otherwise, interest charges will easily wipe out any gains you might realize from rewards.
Tips for managing the cards you keep
If you’ve struggled to manage your credit card, know that some issues are fixable. Setting up autopayments ensures that you pay on time, every time. Make sure you have the funds available in your bank account each month to avoid overdraft fees. Treat your credit card like a debit card and pay your bill more frequently than once a month so you keep your balance low. You can also set up email and text alerts that will notify you when your bill is due or when a charge over a certain amount has been made to your card.
It’s also worth evaluating if what you actually need is a different card. As your financial needs change, your old card may not keep up. You can shop around for a new card with the features you’re looking for, like:
In some cases, you may even be able to upgrade or downgrade your existing credit card without having to open a new account.