Why One Credit Card Nerd (Mostly) Doesn’t Use Credit Cards

In "The Psychology of Money," author Morgan Housel states, "knowing what to do tells you nothing about what happens in your head when you try to do it." Over the years, I've mentally beat myself up for not keeping my credit card spending in check because I know better. But financial education is just part of the battle: Knowledge is important, but our lived experiences with money can impact our financial decisions no matter how well-informed we are.

Sound familiar? Here are a few things to consider if you find yourself overspending on credit cards each month.

1. Carrying a balance says nothing about you as a person

Some carry guilt or shame about being in credit card debt, particularly if they believe they made mistakes — such as overspending — along the way. But the truth is that no one makes perfect decisions with their money all the time; there's just more room for "error" when there's more room in the budget.

If you have a hard time making ends meet each month, it's likely not because you ordered pizza delivery that one night you were too tired to make dinner for your kids or you got a parking ticket. I've certainly spent time feeling bad for every money decision I made that was less than ideal, particularly when my income wasn't enough to provide any financial leeway. Carrying a credit card balance is expensive and can be demoralizing, regardless of why it exists.

But life is expensive and this past year has been particularly pricey. So if you have credit card debt, forgive yourself for whatever you spent to make it through, on necessities or otherwise. And then, if you can, make a debt payoff plan to start chipping away at it to save yourself the mental and financial burden in the future.

2. Debt isn't the only indicator that something is wrong

Going into credit card debt for nonessentials is an obvious sign that you're overspending. But maybe you can still make the credit card payment in full each month; you just notice there's not much to go toward your savings or investing goals.

This was the case for me. While I've been in and out of debt over the years, as my income has increased, overspending on credit cards wasn't putting me in the red but instead taking away from my financial goals, such as saving up a down payment on a home.

Evaluate whether your credit card spending is serving you. If you find that there doesn't seem to be money at the end of the month to do much more than pay off your balance, think about why that is. Is there really only enough income to cover the essentials or is more of your money going to things you don't really care about because it's so easy to tap your credit card?

3. Rewards are only rewarding if you don't carry a balance

"But the rewards!" Credit card rewards can be an awesome perk, giving you cash back or travel rewards for every dollar you spend. But especially as interest rates increase, the rewards aren't worth it if you carry a balance.

If you spend $1,000 on credit cards each month and get 2 cents in cash back rewards for each dollar spent, you'd get $20 a month or $240 over a year — which is great, but only if you're paying off the full amount you owe each month.

As of November 2022, the average credit card interest rate on accounts assessing interest is 20.40%, according to the Federal Reserve Bank of St. Louis. If you charge that same $1,000 per month but only pay $500 a month toward your balance, your interest would outweigh your rewards in less than six months. If you just made a minimum monthly payment of $25, your interest would outweigh your rewards in less than four months. A sign-up bonus may mean your rewards outweigh your interest for longer, but eventually, your credit card will start costing you if you aren’t paying off the balance each month.

4. It doesn't have to be all or nothing

While some may recommend that any chronic overspender cut up their credit cards, it doesn't have to be so cut and dried. As with anything else, you can aim to strike a balance.

Even though I use a debit card for daily expenses, I still keep credit cards in my money system. Fixed expenses — or those that don't vary (or don't vary much) from month to month — such as child care, utilities and subscriptions are paid automatically on a credit card and paid off each month. Because this balance stays relatively constant each month, there aren't any surprises or opportunities to overspend. Meanwhile, I use a debit card for any variable expenses that I haven't saved up for, such as groceries, dining out and kids' extracurricular activities.

You might choose to go this route of fixed vs. variable expenses or you might avoid using credit cards on problem areas that tend to cause you to overspend, whether that's shopping at Target or ordering too much DoorDash.

The point is it doesn't have to be absolute. Credit cards can be part of your financial life without being your entire financial life. In addition, credit cards may better serve some categories, such as gas and hotels, for ease and security. But ultimately, you must decide whether credit cards are appropriate for all your purchases, some or none of them.

5. Do what works for you

You've likely heard the platitude "personal finance is personal." While clichéd, it's true. There are general rules that can be helpful starting points when figuring out your money, but ultimately, you must live with the financial system you set up. So if the "best" way to do something doesn't work for you, don't do it. Instead, use the second-best way or even someone else's worst way. As long as it sets you up for success now and in the future, it's a good system.

The article Why One Credit Card Nerd (Mostly) Doesn’t Use Credit Cards originally appeared on NerdWallet.