“Will that be debit or credit?”

A seemingly benign question posed at the point of sale, one that many of us gloss over as we reach for one of the plastic cards poised to leap out of our wallets. But the phrase is also a powerful reminder of our potential to use healthy money habits and choose courageously when spending hard-earned dough. And, as the most wonderful time of the year bears down, it’s a perfect time to bring that into better focus.

Many of us default to using credit cards—which isn’t necessarily a bad thing IF (and this is big) you always pay the entire balance at the end of each month. And why not when there are perks and rewards, discounts and miles, and countless other tasty incentives to entice you?

Besides, if you can pay the balance every month, there’s really no disadvantage to using a credit card, right?

Not necessarily. Habitual credit card usage establishes a different mindset than when you use a debit card. This is problematic at any time of year, but particularly when you’re subject to holiday stress and the fears associated with missing out on the fun (translated: no lavish entertaining or decorating) or falling short on what you think should be your gift-giving patterns (translated: disappointing your kids).

Research suggests that credit cards can stimulate overspending, writes Scott Rick Ph.D. in a Psychology Today article:

” People are often willing to pay more for the same product when using credit than when using cash. Certainly, outside the lab, there are many trait-based explanations for such a ‘credit card premium’ – for example, people who choose to use credit may differ fundamentally from people who choose to use cash. However, even when usage of cash or credit is randomly assigned in experimental settings, people tend to spend more with credit.”

Think about it: unless you keep hefty balances in your checking account on any given day, chances are good that your credit card has a much richer spending limit behind it. On the flip side, if you restrict all of your purchases to a debit card, you’re ONLY using the money available in whatever account it’s attached to. Since every debit purchase shows up immediately in that account, you’re able to see a real-time representation of what you’re spending against your cash balances, which offers an invaluable, built-in spending monitor.

There’s another layer to this: since no one wants to endure the embarrassment of a declined transaction due to an overdraft account (or overdraft charges), using a debit card requires budgeting (how does THAT word feel in your mouth?).

Unlike atom-splitting, however, creating a budget is a fairly straightforward exercise in which you identify the inflows/income and outflows/expenditures of cash. There are free apps that can help (Mint and Pocketguard, to name a few) but you can easily do it on a Microsoft Excel spreadsheet or, for that matter, on the back of your last Amazon shipping invoice.

On the expense side, it’s helpful to differentiate between fixed expenses (have-to-pay) versus variable (more flexible) expenses. Fixed expenses include things like mortgage, rent or car payments, car insurance, health insurance, utilities, phone and cable. Variable expenses include entertainment, clothing, mani-pedis, gifts and vacations—usually the first things to be whittled down when you’re in the red.

These are suggestions, of course—there are as many categories as there are people—so you should fine-tune the list to reflect your own spending items. It can take a few months to get a handle on all the categories, but soon enough you’ll have a good grasp of your cash flow.

The math isn’t hard. Being honest with the numbers might be, but you can be sure they’ll be honest in return. And, believe it or not, fudging them will only fuel the underlying fear. There’s power in knowing and understanding your finances, but looking the other way forfeits the power and sets you up for financial trouble down the road.

If the change in habit leaves you feeling more fearful, it might be because it’s shedding light on an overspending habit. But that enlightenment will serve you well–not only will you cultivate an air-tight grasp of your spending habits, you’ll also eliminate that t-boned feeling when the credit card statement arrives (wow, I didn’t realize I spent that much this month).

If you find yourself rationalizing credit card use with the old, “Well, I have to buy groceries anyway, so I might as well get rewards for them” argument, you might find that using a debit card will encourage you to shop smarter and resist that “buy two-get-one-free” deal on furniture polish–especially if you know your car is in need of new brake pads.

Note: In the majority of cases, you do not have to enter your “pin” to complete a debit transaction. Just opt for “credit” when using your debit card, and the money will still come out of the attached account.

And about those “rewards”? You can still get them—by knowing that your monthly spending is within your means.


To courageous living,

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