The logic in the credit card commercial above bugs me. A dad promises his daughter to buy tickets to a Katy Perry concert for her, her older sister, and many of her friends because he gets extra reward points on his credit card. This is obviously not a financially sound decision: the cost of all those concert tickets would far outweigh the reward points gained from the purchase.
That said, I often do something just as irresponsible. I use my credit card as much as possible: I pay it off every month to avoid interest and cash in the reward points every few months to lower my current balance. But while I don’t buy things just for the reward points, I probably spend more money using my credit card than I would if I were spending cash.
Shopping with my credit card means that I have to depend on willpower and proper planning to stay within my budget. On the other hand, cash would limit my spending to the amount I had in my wallet. It would force me to be more aware of my budget; more vigilant about what I was putting in my shopping cart or ordering at a restaurant.
Do you have a similar problem? If you’re not sure, try using cash instead of a credit card for a month. If you find that you’re under budget in spending categories you usually go over or are generally spending less money over this time period, your credit card might be a source of a leak in your finances.
If you don’t carry a balance month-to-month, credit cards can be great financial tools. They can help you build credit, are safer to carry than cash, and give you opportunities to save with reward points. But if its enabling you to spend more money than you budget for, it might be time to switch to cash.