Switch from a credit card to a debit card to save more money

Credit card can be a powerful tool in your financial arsenal. In addition to convenient payments almost anywhere – online or in physical stores – credit cards also offer easy financing for large purchases and can reward you for your spending

Silver Tips Logo

However, the convenience and benefits of credit cards come with risks, including finance charges on deferred balances. Interested in credit card debt can be brutal, but the risk of overspending can be just as severe. Several studies showed that credit cards increase consumer spending. If you’re looking for a way to cut spending, find out why limiting your credit card use could help.

To find out more, check out the the biggest credit mistakes to avoid and what to do if you can’t pay your credit card bill.

Why should I consider using my credit card less?

In short, to avoid overspending. When you use a debit card, you’re using money you already have – you’re living within your means. When you use a credit card, you’re not spending your own money, you’re borrowing someone else’s to make your purchase.

The amount of money you have in the bank (or on your prepaid debit card) decreases immediately when you spend it, a psychological factor that can counter the urge to buy more than you can afford.

With a credit card, the actual payment for the purchase is delayed and this payment can be postponed again and again. This “decoupling” of purchase from payment can make psychologically easier to spend more money and lead to overspending and growing household debt.

While credit cards can decrease the “payment penalty“, they could also reward willingness to spend.

A brain study conducted by MIT researchers seems to support the idea that credit cards can “press the accelerator pedal” on spending. Scientists have found that credit card spending activates a part of the brain called the striatum that’s linked to reward perception and addiction. Similar purchases made with debit cards or cash did not have the same impact.

Your credit card purchases aren’t as obvious as your debit card purchases

When you use a debit card, your purchase will shortly appear in your Bank account your activity and account balance will decrease by the amount you spent. On your online banking account page, each debit card purchase will be listed along with all of your other withdrawals and deposits, including checks you’ve written, Zelle transfers, direct deposits, and electronic bill payments.

And then comes a monthly sum for your credit card payment. Of course, every credit card usage is listed in your credit card account, but that’s one step outside of where you make actual payments and receive income. A regrettable impulse buy is more likely to encourage thinking about your spending when it’s listed just below your monthly rent payment.

In a 2008 studyresearchers Priya Raghubir and Joydeep Srivastava found that consumers are likely to spend less when considering each item purchased, rather than the total amount of a group of disparate items.

When is a credit card better than a debit card?

First, a credit card is probably your best option when you don’t have funds available for a purchase. If you can pay off your debt quickly and need money now that you don’t have it, a credit card is your answer.

Second, use a credit card if you want rewards on your spending. There is a wide range of options for rewards credit cardsfocusing on expense categories like travel, Restaurants and gas. If you are disciplined with your spending and your budget, rewards cards can offer significant returns and benefits.

You’ll also want to use a credit card for purchases from time to time if you’re trying to create credit. Paying off credit card debt on time is one of the easiest ways to establish a good credit score.

Finally, if you are making a large purchase or buying from an unknown seller, a credit card will provide you with more buy protection than a debit card. Credit cards often extend warranties by a year or more and include better protections against fraud.

While credit cards offer many benefits, understanding the overspending risks associated with credit cards will help you decide when to leave them in your wallet. Whether or not you reduce your spending by decreasing your credit card usage will ultimately depend on many factors such as your personal behavior, psychology, and financial situation.

To learn more about credit cards, see how to choose and use your first credit card and find out what is considered a good APR credit card now that interest rates are rising.