If you’ve paid off your credit card after the winter holidays, why not put your card away in the drawer now? If your goal is to live within your means and even get some savings behind you, I would suggest that the regular use of a credit card may not support this goal.
Can you be masterful with money without a ‘MasterCard’?
Some folks use a credit card for all of their discretionary spending, paying off the bill in full when it arrives at the end of the month. I’m not too comfortable with this. It means that your income is immediately devoted to paying off last month’s costs, so you’re always on the back foot.
Here in the UK, the CAP Money Course is well-respected way of helping people break the cycle of debt and get on top of their finances. CAP advocate a cash system: withdraw the money you need for each item of discretionary spending (e.g. food and groceries), place the cash in an envelope and only spend the amount of money in the envelope until next week comes around.
I use ‘cash’ but with a debit card, tracking daily my spending against different budget categories, which I anticipate and plan for every month.
I have one credit card account. I once cut up the actual card completely, but realised that this was probably an extreme move, as I do some international travel and having a credit card can be useful.
I now retain that single card but I use it only for genuine emergencies. Here’s one such example. Around Easter 2015, we took a trip to Dubai as a family. We all became very poorly, which we attributed to a meal we ate in the desert. My husband subsequently collapsed because of dehydration and gastroenteritis, following which he spent a night in one of the city’s hospitals where he was put on a drip to recover. Moral of the story? Keep a credit card for genuine emergencies. That was a real emergency, involving blue lights and a lot of other ‘excitement’ that I’d rather not repeat.
What if I’ve got more than one card?
There are varying different views on this.
If you are familiar with the work of Dave Ramsey, you’ll know that consolidating credit card debt onto one card (or onto a loan) is a no-no. Ramsey’s view is that you should work to pay down the smallest debt first, which results in a positive ‘snowball effect’ of paying down each debt one by one. Although you’ll keep paying the minimum payment on any other card/s you have, once you’ve paid off card 1, all of your efforts can be devoted to paying off card 2 and so on.
Another possible option is to buy yourself some breathing space by transferring your credit card debt onto an account where you pay zero interest for a given period. This could allow you to divide the money owed into manageable chunks, paying off the balance before the credit interest kicks in.
What I do see from Ramsey and others:
No debt is good debt. If you need to use a credit card to buy something, that suggests you can’t really afford it.
What’s your view? How does becoming minimalist support your financial goals?
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