There’s no denying credit cards are useful. Need to get the best vacation rates but haven’t been paid yet? Stick it on the credit card and pay it back on payday. Want the newest smart TV before it sells out? Your credit card comes to the rescue, especially with those special offers only available to customers using credit. Plus, with an abundance of new credit cards out there, there’s always going to be one waiting for you with an even lower interest rate.
However, credit card spending can quickly snowball out of control. The ease of buying something with your credit card might lead to impulsive purchases, leaving you stuck for repayments and racking up more debt. But stop using your credit card and this inactivity can lead to the issuer closing your line of credit, lowering your credit score. It’s so easy to get stuck in the cycle of credit card spending and repayment because that’s exactly what the issuers want.
It’s estimated that the total credit card balance of the US amounts to $986 billion. That’s around $4000 for every adult. If you’re planning on managing your spending, avoiding debt, or trying to save up for a landmark purchase, it might be time to cut up your credit cards. So, how do you stay away from those attractive offers and kick the credit card habit? In this article, we’ll discuss why credit card offers are so hard to refuse, and how you can do just that.
How Credit Card Marketing Works
Chances are, if you’ve got a habit of accepting credit card offers, you know how they work. Credit cards essentially allow you to borrow money from a credit broker, which is later repaid with interest. However, a lot of credit cards also come with added benefits that make opening an account hard to refuse. Once you’ve opened a line of credit with a broker or issuer, they’ll often send you further offers to keep you spending and repaying. These offers may include a time-limited reduction in your interest rate, no cashpoint fees, or a 0% interest rate on a second credit card.
Credit card marketing targets individuals that are likely to jump on offers. This means the more credit card offers you take advantage of, the more offers you’re likely to receive. Credit card holders might also receive offers that are ‘pre-approved’. This makes it much easier for customers to take advantage of these offers since they know they’ve already been approved. Of course, it’s in the credit broker’s interest to make it as simple as possible to redeem any offers.
The Benefits of Closing Your Credit Account
Issuers also know their customers are inclined to keep a credit account with them open if they’re trying to boost their credit score. It’s true that small purchases and swift repayments now and again can boost your credit. However, if you want to kick the habit of accepting credit card offers it can be worth closing your account altogether.
Before you cancel your credit card, check with your issuer to make sure you won’t receive any penalties. If there’s no penalty for an unused card, you can simply tuck it in a drawer and save it for emergencies. However, if an unused credit card is going to lessen your credit score over time, contact your provider for instructions on how to cancel your card.
The benefits of closing your credit account include:
Ease of Accounting - If you’re trying to keep tabs on your spending, keeping track of your income and outgoings is a lot simpler with no credit card bills. Not to mention, you’ll have an easier time budgeting if you don’t have to pay out credit card debt throughout the year.
Avoid Annual Fees - Some credit cards include mandatory and hefty annual fees to be paid on top of your normal repayments and interest. Canceling your credit card can save you money and stress just by avoiding these annual bills.
Lose the Temptation - Knowing your credit card is ready and waiting can be a bigger temptation than any offer sent to you by your issuer. If you don’t think you can stop using your credit card, cancellation is the only way to go. Even if it may affect your credit score in the short term, canceling your credit card is a definite long-term remedy for bad credit.
Keep in mind that keeping a credit card uncanceled, yet unused, can help if you’re applying for a loan or credit on a purchase in the future. This is because it will prove that you’ve been approved for credit before. If you are considering keeping a credit card, make sure it’s your oldest as this can benefit your credit history. However, if you’re considering closing one, cancel the card with the highest interest rate.
Analyzing Your Spending
If you’re trying to kick the credit card habit, diving into the cause of your spending can be a great place to start. Using your credit card for essential purchases, such as groceries, and paying off the balance in good time usually won’t be a problem. However, if you’re spending on unnecessary items or services and finding it hard to pay off your credit card balance, there may be something deeper happening. All addictions are rooted in the psychological, and credit card spending is no different.
When we buy something, our brains release endorphins and dopamine, the pleasure chemical, which can be very addictive. Perhaps you’re spending to keep up with the trends or impress those around you, or maybe you like to indulge in retail therapy when the going gets tough. Either way, your brain can easily become addicted to the joy of shopping. According to WebMD, compulsive shopping may affect up to 23,000,000 people in the US. When credit cards make it so easy to make a purchase, the problem only gets worse.
Getting to the bottom of why you feel the need to take advantage of credit card offers can be a huge help with not accepting the offers that come your way.
How To Kick the Credit Card Habit
The best way to avoid credit card offers is to stop using credit cards. However, this isn’t always possible. Fortunately, there are a few simple tips you can use to curb your credit card spending and avoid jumping at any new offers you receive.
- Opt-Out - If you don’t receive credit card offers then it’s much harder to accept them. Thankfully, according to the Federal Trade Commission, you can call 1-888-5-OPTOUT (567-8688) to completely opt out of pre-approved credit offers. This means you won’t receive any offers that your issuer has already approved you for.
- Log Your Credit Card Purchases - Keep track of your spending by noting everything you buy with your credit card. This should include when you paid it off/plan to pay it off, and how much interest will be added. This can help you keep track of your spending and identify any spending areas that you should cut back on.
- Budget with Income - If there’s an item you know you’ll be tempted to purchase with your credit card, budgeting can save the day. Try budgeting using only your income for a few months. You’ll be able to discern the times in your pay schedule when you tend to reach for the credit card. On top of this, you’ll know how long it’ll take you to save up for a particular purchase without your card.
- Set Goals - Whether you’re saving for a gift or your future, setting manageable goals with regard to your credit card spending can break unhealthy habits and instill healthy ones. For example, ‘I’ll only use my credit card for essentials’ or ‘I’ll pay off any credit card debt in the next 3 months’ are goals that can give you more control when managing your finances.
- Regular Spending - If you still want to use your credit card but want more power over your spending, practice regular spending. Budget your credit card balance repayment with your income every month, so you know you’ll always have enough to make the repayments. Spending the same amount each month allows you to make a regular credit card purchase and pay it off in due time.
- Try a Balance Transfer Card - Finally, if you feel your credit card debt is getting out of control, a balance transfer card might help. These cards, which usually have 0% interest rates, allow you to transfer any credit card debt to them. This gives you an opportunity to pay off your balance without accruing any more interest.
Conclusion
Credit card issuers profit from credit card debt, so it’s no wonder their offers are enticing. However, compulsive credit card spending can quickly become a large financial issue. To break your habit of accepting every credit card offer, try and get to the root of your spending. In the meantime, budgeting can make a huge difference in the way you view credit card purchases. Be sure to opt out of offers and get a handle on any existing debt with small goals and a balance transfer card. If you find yourself unable to stop unnecessary purchases or see your credit card debt piling up, it may help to visit a debt counselor or cancel your credit cards entirely.
Sources
https://www.experian.com/blogs/ask-experian/ways-to-break-credit-card-spending-habit/
https://www.mni.com/blog/credit-card-marketing
https://www.priorygroup.com/blog/compulsive-shopping-and-spending-a-sign-of-shopping-addiction
https://www.webmd.com/balance/video/compulsive-shopping
https://www.moneysupermarket.com/credit-cards/what-is-a-balance-transfer/
https://www.lendingtree.com/credit-cards/credit-card-debt-statistics/
https://www.investopedia.com/financial-edge/0411/6-ways-to-stop-credit-card-junk-mail.aspx
https://www.practicalmoneyskills.com/learn/budgeting/evaluating_your_finances
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