3 Signs It’s Time to Pause Credit Card Spending: When your finances begin to spiral and it becomes increasingly difficult to keep up with credit card payments or make progress towards your financial goals, temporarily transitioning to cash or debit could be beneficial.
According to a recent study by the MIT Sloan School of Management, using a credit card can stimulate the brain’s reward centre and motivate you to make more purchases. The 2021 study had a small sample size of 28 participants, but other research demonstrates that individuals are more likely to spend more when using credit cards. By using cash instead of credit, it is possible to avoid overspending and interest charges on outstanding debt.
However, a vacation from credit card purchasing is not for everyone. If you want to keep your credit scores intact, you will still need to keep zero-balance credit cards open and active with minor recurring purchases, such as paying for streaming service subscriptions or other similar transactions. Issuers may terminate inactive accounts, which can have a negative impact on credit scores.
By not charging new purchases to your credit cards, you can make more progress on your debt or savings. Here are a few instances in which shifting your expenditures to cash or debit makes sense.
3 Signs It’s Time to Pause Credit Card Spending
1. You regularly exceed in specific categories.
You may not need to stop using your credit card immediately. Consider setting aside a fixed quantity of cash or funds on your debit card to cover specific categories where you tend to overspend. Continue using a credit card and paying it off in full each month to avoid incurring interest charges for purchases that do not strain your finances.
If you tend to overspend in multiple categories, however, using only cash may help you remain on track.
2. You make emotional or impetuous financial decisions
You may be unaware of your emotional or impulsive spending habits. LaQueshia Clemons, a financial therapist at Freedom Life Therapy & Wellness in Connecticut, says that it is possible to get an idea by examining credit card statements and reflecting on the reasons for the purchases.
“When you’re upset or emotional, you may find yourself on Amazon or in a shopping mall,” says Clemons. “As a means of avoiding negative emotions, you may find yourself purchasing items, as this can produce a euphoric state to replace the negative emotions.”
If you realise you may fall into this category after reviewing your purchases, she advises you to cease using credit cards and examine your financial habits.
If it is difficult to achieve your financial objectives or if you are in a perpetual cycle of debt, you may also wish to consult a financial therapist. The Financial Therapy Association’s directory will assist you in locating a professional.
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3. You cannot envision an exit from debt.
If your credit cards are stretched out or you’re having trouble making minimum payments, it’s time to devise a plan to eliminate your debt.
Aileen Luib, a digital content creator based in California, was forced to rely on credit cards following multiple closures early in her career. In 2015, her combined balances reached $10,000, throwing a snag in her plans, so she devised a new one.
“I was doing a variety of things to earn money and pay down my debt as quickly as possible,” says Luib. I began utilising my skill sets to eke out a living in various nooks and crannies, and it all added up.
Luib states that she used a balance transfer to consolidate debt from multiple credit cards onto one with a lower interest rate, and that she did not make any additional expenditures on the card. She claims that she paid off her balance in 2017 using these strategies.
A credit score of 690 or higher is usually required for balance transfers. The ideal balance transfer credit card will have a sufficiently lengthy interest-free period, no annual fee, and a balance transfer fee of 3% or less. To determine whether a balance transfer is worthwhile, compare the balance transfer fee to the projected interest charges on the existing credit card. (An online interest calculator can be of assistance.) You will also make more progress on the debt if you cease using credit cards to make new purchases.
If it becomes increasingly difficult to make payments with less-than-perfect credit, you still have choices. Consider meeting with a credit counsellor from a non-profit organisation.
