Credit is very beneficial, if used and managed responsibly. However, if you are one of the many Americans with unwanted credit card debt and unable to pay down your balances, your credit score may be taking a hit. The first step to paying off your credit cards and being debt-free is to stop using them and start using the alternatives to credit cards.
The most obvious alternative to using credit cards is using cash. Using cash ensures that you are only buying what you can afford. The best rule of thumb to live by is this: “if you can’t pay cash for something, then you can’t afford it.” If you are looking to make larger purchases like an appliance or car then start planning and saving now so that you can pay cash for the item. Using cash is an excellent alternative because it helps rid us of the habit to always reach for and swipe the plastic for everything. It’s a hard habit to break and using cash makes that easier.
Additionally, the actual act of handing over physical cash that you can see and feel will help you start making better money decisions. When idly walking through the mall a sharp pair of shoes or handbag may catch your eye and you may be tempted to give in to this impulse buy if using a credit or debit card. But, when you actually have to hand over hard earned cash, you may think twice about whether or not you really need those shoes or that handbag.
Another alternative to credit is a debit card. A debit card can be used in the same way as a credit card, but the funds are drawn directly from your personal checking or savings account. Since you pay for your purchase immediately with a debit card it is very important to keep accurate and detailed records of your spending. Track the balance in your account to ensure you don’t overdraft and incur additional fees.
While a debit card spends like cash, it looks and feels like a credit card so you’re not going to get the added benefits of physically seeing where your money is going or learning to live without plastic. You will, however, be making purchases without a credit card and not incurring debt – and that is the most important benefit of a debit card. Before you start using your debit card all over the place, read the terms and conditions of use because some financial institutions may limit the number of times you can use your debit card in a day. They may also assess small fees for use.
The last alternative to credit is using personal or bank checks, which draw money directly from deposits made into your checking account. This is an excellent way to keep track of your finances. Almost all financial institutions offer monthly statements that itemize each check, the amount and the date the check was processed. When using checks it is crucial to keep excellent records because writing a check against an account that doesn’t have enough money to cover it will result in the rejection of your payment. This will certainly lead to additional fees from your bank and can be treated as a criminal offense in some jurisdictions.
While you are working on using alternatives to credit cards, make sure you are not applying for more credit cards just because they offer a low interest rate or exciting rewards program. The next time you go to your mailbox and have a pre-approved credit card offer, rip it up and throw it out. Then you can take a minute to applaud yourself for resisting the temptation of plastic and working hard to eliminate your credit card debt.
Jim Parrillo is the Co-Founder and Director of Technical Services for Stand Sure Information Services, Inc., a Trustee approved provider of Form 23 Personal Financial Management courses for personal bankruptcy debtors.
Mr. Parrillo co-authored the Personal Financial Management textbook used by Stand Sure Information Services, Inc. for their online bankruptcy pre-discharge course.
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