Most of the advice regarding financial difficulties and cards says to get rid of them.  Cut up your credit cards.  Don’t use your debit cards.  However, it is getting harder to live in our current world without access to these cards.  The key is to use them sparingly and not as a loan.  Psychologically, it is harder to part with cash than it is to use plastic for purchases.  By rarely using debit and credit cards, you will become financially literate, secure, and less stressed.

 

Debit Cards

 

1. 1.    Leave your debit cards at home while you get used to the envelope system.  This way, you won’t be tempted to make impulse purchases.

 

1. 2.    Create an envelope called “Debit”.   Don’t put any money in this on envelope day.  Occasionally, it will happen that you are out and you don’t have the right envelope with you.  If possible, wait until you have the designated envelope.  Don’t get into the habit of using your debit card.

 

However, imagine you get a phone call from home saying that the stove has blown a fuse.  It may make perfect sense to buy a set of fuses that moment so that you don’t have to make an extra trip (and waste gas or bus fare).  You don’t have the “Household” envelope with you, but you know there is money in it for the fuses.

 

You go to the hardware store and buy the fuses.  Be careful NOT to impulse buy anything else with the magic money card!

 

When you get home, transfer the amount you paid by debit from the household envelope to the debit envelope.  At the next envelope day, deposit this cash back into the bank. 

 

Credit Cards

 

1. 1.     Don’t carry your cards with you.  Hide them.

To get financially literate, stop carrying your cards.  Put them in your sock drawer, or your safety deposit box, or put them in the freezer.  Just get them out of your wallet.

 

Should you destroy them?  Not unless you can’t yet discipline yourself not to use them.

 

 

1. 2.    Create a special account for your credit card purchases.  This is a virtual envelope!

Some banks allow you to create sub accounts that you can actually name!    We have an account for Summer, for Kids, and for Credit Card, as well as our regular savings and chequing.

 

Your credit card account is a virtual envelope that you fill BEFORE you make a purchase.

 

On envelope day:

1. a.    Put your minimum payment in your credit card account.
2. b.    Add the money for planned purchases that can only be made by credit card in the account.

 

1. 3.    Credit Card purchases that make frugal sense when you have the money to pay for them before you buy them.
   1. Some travel costs are cheaper when you pay online.  Our daughter’s trips home from studying in another city are often cheaper to buy online than to buy at the station.
   2. Online services.  Netflix for example.  We got Netflix when Peter broke his leg and was bored out of his mind.  Going to the video store was physically difficult and would have been far too expensive.
   3. Huge purchases.  When we have the money saved to buy our sofa, we will transfer the money to the credit card account and go out (hopefully on sale day) and make the purchase so long as the cost (including taxes and delivery) can be covered by what we have in the account.  Why not take the envelope?  Frankly, I would be terrified to carry that much cash.

 

1. 4.    Using Credit Cards without really using them for purchases.

There are things, like rentals, that require a credit card because if you break what you rent or run up charges, the company can get their money back.  You are still able to pay by cash.  Examples include:

• Renting a car
• Renting equipment for do-it-yourself projects
• Renting a hotel room

For these expenses, we use cash from an envelope.  An alternative would be to transfer the funds to a debit card virtual envelope and use our debit card.

 

 

Most people who get into credit card debt figure that they will have the money by next payday or some other day in the future.  It is crucial to stop this thought process and realize that if you don’t have the money on the day you shop, then you don’t have the money… period

 

1. 5.    Credit Card Rewards or Debt Traps?

People who have credit card debt will never benefit from the credit card rewards.  The interest payments will be higher than the value of any rewards. The credit card companies don’t offer the rewards to make their customers’ lives better.  They offer them as a lure to get their customers to rack up the purchases.  Money is not made on the purchases, but on the interest on missed payments.

 

People who use the card as a purchase card and always pay it off within a month are the only people who really benefit from the rewards.  These are not the credit card companies’ favourite customers.  They cost the credit card company money.  J