By Gregory Hurley Published October 5, 2010 Credit Unions Online
With or without a budget one of the biggest challenges for people is to not accumulate new debt without realizing it. Credit cards are a great convenience and often tempt people into buying more than they need or can afford. Rewards and incentives offered by credit cards also help tempt people into using convienient high-interest debt compared to cash or a debit card.
For long term financial health, avoid using any form of debt for anything you use up and have to replace, even if 5 or 10 years later. This includes common purchases like food, household cleaners, pet supplies, and even your family car. Purchases that (usually) do not lose value include real estate and education. Products that you consume depreciate in value as time passes and as you use them. Paying interest on something that loses value over time is not the road to financial health.
Using cash or debit cards will also get you to think twice when making purchases. The money leaves your pocket or checking account immediately. Putting purchases on a credit card seems far easier and people think paying it off will be simple. However, regular credit card use is only good if you have firm control of your spending habits and don't let emotions rule your purchasing decisions. Using a credit card for consumable products increases your cost if you have any running balance on your credit card since interest is accumulated from the day you purchase those weekly groceries. Do you want to pay more for food? Most people would choose to pay as little as possible. Even if something is on sale, avoid the temptation of credit cards. You will likely pay more for the item even if you get it at a discount.
While you might be thinking, sure switching to cash or a debit card for common purchases like food would be an easy thing, switching to cash for a car is impossible. Paying cash for a car is far more challenging, but with planning, your next car can be purchased debt free. You might be in a car loan right now, but if you plan on buying another car in 5 or 6 years, start stashing cash away now for that purchase. Most Americans buy more car than they need or can honestly afford. Car salesmen love to get consumers to focus around the monthly amount without any regard for the true cost of the car you are buying. By putting cash to the side for your next car, you will know the exact amount the car costs you when you leave the lot. If you do finance your next car, at least do yourself the favor of stopping by your credit union first to get the lowest rate on financing.
Switching from credit cards to cash and debit cards is a simple step toward long term financial health. Take the credit cards out of your purse or wallet before you leave for the stores and you will arrive home without having accumulated any new debt. That is one small step toward financial health for you and your family.