Why Credit Cards Hinder Wealth Growth, Even with Timely Repayments

  • AUTHOR: editor
  • POSTED ON: May 30, 2023

You’re among the multitude of consumers with credit cards nested safely in your wallet. You may think you’re making smart financial moves, paying off your balances diligently each month, but here’s a startling fact – a staggering 45% of credit card users carry those burdensome balances month after month. Now, hold on to your seat as I take you on a journey through my own life-changing experience.

I made the audacious decision to banish credit cards from my life entirely. No more swiping, no more tempting “buy now, pay later” offers. And let me tell you, the transformation was nothing short of remarkable.

I noticed an undeniable shift in my spending habits, the frequency of my shopping escapades, and the type of items I chose to purchase.

During that unforgettable period of nearly five days, my financial reality took an unexpected turn. The invisible costs of credit card spending that once eluded me became crystal clear. As I distanced myself from the allure of plastic money, a newfound sense of freedom emerged. Suddenly, my wallet felt lighter, both physically and metaphorically.

More Spending on Highly Priced Items

Did you know that using credit cards can actually make us spend more money? According to a smart researcher from MIT, when we swipe those plastic cards, we tend to be more willing to buy things at higher prices. Not only that, but we also end up giving bigger tips and making more impulsive purchases.

But hey, guess what? I discovered a sneaky trick to save money and be more disciplined with my spending. It’s not because I suddenly turned into a super disciplined superhero, but rather because I found out that buying things on a whim was a big hassle. So, when I did decide to make a purchase, I was absolutely sure that I really wanted it.

And get this; there’s this cool study by the Journal of Consumer Research that found paying with cash actually creates a stronger bond between us and the stuff we buy. It’s like we become best buddies with our purchases.

So, if we go through the “pain” of handing over physical money, it turns out we feel a deeper connection to what we bought compared to those who simply swipe their credit cards without feeling a thing.

Becomes Hard to Plan and Time Expenses

My financial education students often struggle to stick to a budget when they’re actively using credit cards. It’s like their expenses become these wild, unpredictable creatures that mess up their plans. And to make matters worse, depending on when their credit card bills are due, they end up short on cash for other things they didn’t charge on their cards.

I have discovered a secret weapon to conquer this budgeting madness. When I put a pause on my own credit cards, magic happened. You see, I set aside a specific amount of cash for each category in my budget. And once that cash ran out, I had no choice but to wait until the next month to fulfil my spending desires.

Now, here’s a little trick even for the credit card lovers out there. You can call up your credit card company and ask them to change your due dates to match your other expenses. It’s like synchronizing the dance moves of your bills, making it easier to keep track of everything.

Oh, and here’s a nifty trick I personally use. I pay off my entire credit card balance at the end of each calendar month. That way, I can clearly see how much I’ve spent within that month without any lingering debts from the past creeping up on me. It’s like a clean slate for my budgeting adventures.

A Long-term Headache

Initially, when I started making money, I made the mistaken assumption that individuals with credit card debt were simply careless spenders.

However, I soon discovered that many of my knowns had accumulated credit card debt despite being responsible cardholders for years. It often took just one unexpected event, such as a job loss, a significant medical expense, or a major car repair, to plunge them into a cycle of mounting debt that seemed impossible to overcome.

According to Experian Data, average credit card balances rose by 13.2% to reach $5,910 in 2022. With interest rates on the rise, even if people refrain from making additional purchases on their credit cards, the inability to pay off the balance on time results in it growing faster than they can manage.

If you rely on credit cards as your primary means of handling emergencies, it’s crucial to focus on establishing an emergency fund. This fund should be sufficient to cover at least 30 days’ worth of basic necessities such as food, transportation, utilities, housing, and healthcare. In the event of a sudden job loss, having this fund in place will provide you with a minimum 30-day buffer to sustain your life without resorting to credit card usage.

While I don’t anticipate you to completely abandon the use of credit cards, I encourage you to sincerely evaluate whether they are genuinely contributing to your long-term financial independence.

It’s essential to reflect on whether credit cards are truly aiding your journey toward financial independence. Assess their impact on your overall financial well-being and determine if they align with your goals for the future.

While credit cards can offer convenience and short-term benefits, it’s crucial to weigh their potential drawbacks and consider alternative strategies that may better support your long-term financial stability.

Updated May 30, 2023
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