For Those With Bad Credit Habits: The Benefits of Debit Cards Over Credit Cards

I have found that debit cards were really useful when I was working to eliminate debt.

A number of financial advisors direct people who are having spending problems to use the "Jar" technique. This is a bit out-dated and probably not pragmatic, but the approach is sound. Basically, the idea is to have a number of empty envelopes that you put your salary into as you get it. You would have one for the rent, one for groceries, one for gas, etc. Then, as soon as you get a paycheck, you drop your cash in the envelopes for the month. This technique was used to help protect people from overspending. I haven't seen this written about in modern financial books but a number from the 1970's and earlier espoused this approach. This probably made sense in the days prior to widespread credit cards, ATMs, electronic banking and computers. However, the principle is right on (forced budgeting).

Take a look at http://www.mvelopes.com/ I haven't used this service but it looks like the modern equivalent to what I am describing. I personally use Quicken but this service may be easier.

The issue with credit cards is that they easily let you overspend. There is no "I spent my salary for the month so I can't go to dinner out with the gang tonight". Instead, credit helps drive the immediate gratification consumer culture and people easily overspend.

You probably should initially cut up ALL your credit cards. This is a good way to go cold-turkey, but it can be kind-of a pain from a day to day basis. After all, who wants to walk into the gas station to pay when you could get in and out with a swipe of the card?

If you are trying to go cold-turkey, look at debit-cards for benefits:
- They are very similar to paying by cash or a check. You need to have the money in your account. Your money is debited immediately and you don't pay interest.
- If you are the type that doesn't do extensive financial management and check-book balancing, it makes it easier to manage your spending by watching your bank balance and avoiding getting hit with a big credit card bill at the end of the month.
- They provide all the convenience of a credit card (fast access, not having to run to an ATM).
- Many banks provide cash-back as well. I get 0.5% back for debit-card transactions.

(NOTE: Do not get caught in the trick of spending more because you get cash back. Drop this until you have paid off your debt and have proven to yourself that you can consistently pay off all your card balances every month. You are losing FAR more in interest charges if you keep a balance then you will ever make in cash-back).

So, in summary, if you are looking for a way to cut out your credit card spending, I strongly urge you to move to debit cards for the time being.