Why Your Credit Card Addiction Is Making You Poorer [Even If You Pay Off Each Month’s Bill In Full And On Time]
One of the very first conversations we have with members is about their personal spending. When you want to build wealth, this area holds enormous potential for transformation for the simple reason most people overspend because of credit cards. Credit cards are a REALLY bad thing. Yes! Even if you do pay off each month’s bill in full and on time.
If you’re serious about building wealth, you MUST ditch your card and start spending cash in real-time. So keep reading… In this article, I’ll show you how to make this transition and explain why this single behaviour change will make you significantly wealthier [in the long and short-term].
Are credit cards really that bad?
Credit card companies have done an excellent job at convincing us they’re an indispensable part of our life. It all started when you were a kid. The second your parents became convinced you needed one for ‘emergencies’, credit cards became a basic essential.
But it didn’t stop there…
When we ask members why they want to keep their card, they reply with all kinds of good ‘excuses’.
- It’s better for cash flow
- I get points – and they’re valuable to me
- I don’t pay any interest, so it doesn’t hurt me
- I need one in case I have an emergency
- It makes my life easier
- I need it for online purchases
“But, but, but!”
Despite these so-called ‘advantages’, credit cards are still bad because the costs of using one always outweigh the benefits.
You spend more with a credit card – significantly more
Despite what you think, a credit card doesn’t help you control your spending. Instead, it entices you to spend more, which is disastrous for your cash flow.
You’re not connected to your money when you pay with a credit card. There’s no friction, which makes it all too easy to spend, spend, spend. Think about it… Would you buy that $75 jacket as easily if you paid by cash instead of by card? It’s this mindset that explains why credit card users spend an average of 25-30% more per month.
Just let that sink in for a moment. If your monthly bill is $1,500, that’s between $375-$450 a month extra. Over the course of a year, that’s $4500 to $5400 per year! That’s a serious chunk of cash – money you could invest, add to your Get Out Of Jail account, spend on travel, or use to pay down debt.
Next, multiply that figure over a decade and I think you get the picture! [And that’s without factoring in how money compounds and grows exponentially.]
Let me say it again. Credit cards have no place in a serious wealth-building strategy.
But what about emergencies?
It’s a good argument, right? Credit cards companies have cleverly got us holding onto our cards ‘just in case’.
But when was the last time you had a ‘real’ emergency. Was it an emergency or was it merely the result of poor cash management or worst still… a ‘want’ instead of a ‘need’.
When you have the security of a credit card, it’s too easy to lower the bar. An emergency can become a holiday, a car upgrade, or an expensive outfit for your mate’s wedding.
Then things get risky. If you overstretch yourself one too many times, interest rates start to bite. It’s how a single credit card decision can hang around you for years to come.
Let me repeat it again. Credit cards don’t build wealth; they take it. If you want to feel secure in cases of emergency, create a Get Out Of Jail account instead!
How to quit your credit card addiction
To be in a position to quit your credit card you have to do two things:
- Clear any outstanding balances
- Get yourself in a situation where you can spend your money in real-time [using a debit card or drawing cash from your personal spending account]
It can take a few months to get into this position due to the delay of credit card bills. What you spent yesterday won’t have to be repaid for up to 6 weeks. Unless you have enough surplus cash to clear your card and start spending in real-time immediately, you’ll need to work through a transition period.
During your transition period, split your personal spending between your cash account and your credit card. Aim to reduce the percentage that goes on your card until you don’t need this crutch any longer. This switch can take anything between 3-6 months.
These steps will help you do this:
- Create a fixed personal spending budget.
The most critical step; how much money can you spend each month to:
- Cover your monthly spending
- Pay off your credit card bill
Top tip: To help quit your credit card quicker, it’s worth making deeper cutbacks in the short-term.
- Track your cash flow
Credit cards stop you thinking about how much you’ve spent. Time to quit that habit too. Instead, hold onto your receipts and keep a close eye on where your money goes. Keep yourself accountable to your budget, and you’ll stay on track with your plan.
- Spend intentionally
Before you buy anything, check whether you need it. Ask yourself if the purchase will make you happy or are you merely filling a void? This isn’t ‘tight’ or ‘stingy’. Instead, you’re ensuring all purchases align with your values. Best of all, when you spend your money intentionally, you’ll almost certainly spend less – helping you quit your credit card sooner.
Take a step closer to financial freedom
Cutting up your credit card is a huge turning point in your wealth-building strategy:
- You’re forced to spend money intentionally
- Which makes you more connected to your money
- Which inspires you to spend less
- Which frees up cash to invest elsewhere
- Which over time increases your wealth
All because you ditched your card!
If you’re ready to make this transition, your Wealth Enhancers Coach can help. Work with us, and we’ll help you create a robust plan so you can navigate your transition period with more ease and less stress.
Ready to make the switch? If so, book your FREE Intentional Living Strategy Call today. It’s the first step to true financial freedom.
Disclaimer: All information contained within this article is of a general nature. Do not rely upon it when making financial decisions. Please consult a professional financial advisor or planner (like us!) before acting.