Fewer people than ever carry cash these days, it seems. Life can seem ultraconvenient when you don’t have to worry about a wad of bills in your pocket (or even a wallet in your pocket, for that matter).
But it can hurt people with low incomes when businesses go cashless, it can hurt workers who rely on cash tips and — even if you’re not in either of these groups — it can hurt you because it’s easy to get into financial trouble with credit cards.
Studies prove that people spend more when using credit vs. cash, and late payments are on the rise.
“You have an out-of-sight, out-of-mind phenomenon with credit cards,” said Amy Bucher, the director of behavior change design at Mad*Pow, a design consultancy group. “Unless they’re checking their credit card balance on a daily basis, most people don’t have an awareness of how much debt they’re in.”
But if used responsibly, credit cards are a fast way to build credit without paying a dime of interest.
Good credit scores can save you money down the road, typically qualifying you for lower mortgage or auto loan interest rates. Credit card rewards can make things you buy a little cheaper.
The good news: Mental tricks, apps and tools can make spending with credit cards similar to cash, giving you the best of both worlds.
Make credit card purchases feel tactile
Cash requires you to shop at a physical store, grab your physical wallet and hand over physical money. Giving a cashier a $20 bill in exchange for an $18 item is a tangible transaction. In exchange for a $20, you now have $2 left and a physical bauble.
But a credit card looks the same before and after the transaction, obfuscating what was actually given up for that bauble. Add online shopping to the mix, and you might not even think about your credit card or where the money is coming from.
Grab a receipt. Beverly Harzog, a credit card expert and consumer finance analyst for U.S. News & World Report, always takes a receipt. “It’s just one more thing to help you keep a grip on reality,” she said. “When they ask if you want a receipt, just say yes so you have that feeling of payment in your hand.”
Remove payment information from your computer. Consumer psychologists refer to creating friction — meaning barriers to doing something — as an effective way to stop an impulse buy. “If you’re sitting on your couch, you’ve had two glasses of wine, you see rain boots on sale, and your credit card information auto-populates, you’re probably going to buy it, because you really only needed to hit two buttons to make that purchase,” Ms. Bucher said. “If you had to get off your couch, pull out your credit card and type in the numbers, that’s friction. You have to commit a little more to make the purchase.” In contrast, digital payments like Apple Pay offer convenience when you’re at the cash register, but they take cash and physical cards out of the equation. If you’re nervous that holding your phone next to the scanner to complete a transaction could turn you into a spendthrift, don’t partake.