You might remember that anti-drug campaign built around the slogan “just say no.” We have no idea how successful that campaign was but we do know one thing for certain. When it comes to buying stuff on credit the most important thing you can do is just say “no”.
The power of saying, “no”
If you’re struggling with debt this little two-letter word can be your best friend. For one thing, it can keep you from making impulse purchases that would just run up your debt. When you say “no” to eating out or getting take-out food you keep from adding to your debt. If you say “no” to going clubbing once a week, you keep your debt from growing. And if you say “no” to the idea of keeping up with your peers, you’ll both save money and keep your debt from turning into a greedy monster.
The most important “no” of all
Most importantly you need to say “no” to using your credit cards. No matter how tempting it might be to use them you need to use cash instead. Don’t close those cards because that could damage your credit score. But you need to either shred them or if you have enough self-control, tuck them away in a drawer somewhere.
The problem with credit cards
The problem with credit cards is that they’re just too darn easy to use. There you are browsing your favorite store and you see this amazing sweater at 50% off. You don’t have the cash in hand and your checking account is a little low so why not just whip out that credit card and buy it? You know this will just add to your debt but in the immortal words of Scarlett O’Hara, “I’ll worry about that tomorrow.”
Why cash is better
The reason why it’s better to pay for things with cash than a credit card is mostly psychological. There is just something that feels more difficult about pulling out the cash to buy that sweater versus swiping your credit card. If you don’t believe us, try this experiment. Take $50 out of your nearest ATM and tuck it in your billfold. Now, go shopping. Find something that costs, say, $40. Take a deep breath and reach for your billfold. Think about paying cash versus swiping a credit card. We can just about guarantee you’ll find it more difficult to pay cash for that item. In fact you might even decide to not buy it.
Psychologists call it coupling
According to an article that appeared recently on the website WiseBread the reason why it’s tougher to pay for things with cash is because of something that psychologists call coupling. This is a word that describes how the experience of buying something is tied to the experience of having to pay for it. When you pay cash for something the feeling your get is intimately tied to your experience of using it. As an example of this, if you use cash to have a few drinks with a friend then the action of enjoying those drinks and the act of paying for them would be directly coupled. In most cases the pleasure of the drinks would feel about the same as paying for them.
Decoupling usually means spending more
On the other hand if you were to pay for those drinks with a credit card you kick the payment down the road. You distance the act of having the drinks far enough away from the pain of payment that they do not feel closely associated. Another way to put this is that you decouple the pain from the pleasure. You focus on your enjoyment of the drinks – without feeling the pain of piling on more debt.
So how can you live on cash?
This is a bit simpler than you might think. You will need to make a list of all those expenses you know you’ll have every month such as your housing, food, utilities, transportation, insurance and debt repayment. Add up all those numbers and then subtract the total from your monthly earnings. This is what you will have to spend on discretionary items like eating out, take out, clothing and entertainment. Divide that amount in two and you’ll know how much cash you will need to get you through two weeks. Go to your bank Saturday morning or to your nearest ATM and take out the money. And there you have it. You can now put your credit cards away and learn to love cash.
Add the envelope method
When you take out cash to cover your discretionary expenses there is another benefit. You could divide the money into envelopes with labels like eating out, entertainment, clothes and so forth. When you need to pay for something in one of your categories take the money out of the appropriate envelope. When an envelope is empty, that’s it. You can’t spend any more money in that category. This is yet another “no” that can help you better manage your spending and keep you from piling on more debt.