The Best Way to Use a Credit Card? Treat It Like Cash. – The New York Times

Credit cards can build your credit and earn you rewards, but they can also put you in debt. These tricks can keep you accountable for your spending.

Fewer people than ever carry cash these days, it seems. Life can seem ultraconvenient when you dont have to worry about a wad of bills in your pocket (or even a wallet in your pocket, for that matter).

But it can hurt people with low incomes when businesses go cashless, it can hurt workers who rely on cash tips and even if youre not in either of these groups it can hurt you because its easy to get into financial trouble with credit cards.

Studies prove that people spend more when using credit vs. cash, and late payments are on the rise.

You have an out-of-sight, out-of-mind phenomenon with credit cards, said Amy Bucher, the director of behavior change design at Mad*Pow, a design consultancy group. Unless theyre checking their credit card balance on a daily basis, most people dont have an awareness of how much debt theyre in.

But if used responsibly, credit cards are a fast way to build credit without paying a dime of interest. Good credit scores can save you money down the road, typically qualifying you for lower mortgage or auto loan interest rates. Credit card rewards can make things you buy a little cheaper.

The good news: Mental tricks, apps and tools can make spending with credit cards similar to cash, giving you the best of both worlds.

Editorial note: The assessments of financial products in this article are independently determined by Wirecutter, a New York Times company that reviews and recommends products, and have not been reviewed, approved or otherwise endorsed by any third party.

Cash requires you to shop at a physical store, grab your physical wallet and hand over physical money. Giving a cashier a $20 bill in exchange for an $18 item is a tangible transaction. In exchange for a $20, you now have $2 left and a physical bauble.

But a credit card looks the same before and after the transaction, obfuscating what was actually given up for that bauble. Add online shopping to the mix, and you might not even think about your credit card or where the money is coming from.

Grab a receipt. Beverly Harzog, a credit card expert and consumer finance analyst for U.S. News & World Report, always takes a receipt. Its just one more thing to help you keep a grip on reality, she said. When they ask if you want a receipt, just say yes so you have that feeling of payment in your hand.

Remove payment information from your computer. Consumer psychologists refer to creating friction meaning barriers to doing something as an effective way to stop an impulse buy. If youre sitting on your couch, youve had two glasses of wine, you see rain boots on sale, and your credit card information auto-populates, youre probably going to buy it, because you really only needed to hit two buttons to make that purchase, Ms. Bucher said. If you had to get off your couch, pull out your credit card and type in the numbers, thats friction. You have to commit a little more to make the purchase. In contrast, digital payments like Apple Pay offer convenience when youre at the cash register, but they take cash and physical cards out of the equation. If youre nervous that holding your phone next to the scanner to complete a transaction could turn you into a spendthrift, dont partake.

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You cant buy $300 headphones if your wallet contains only $100. But you can if youve got a card with a credit limit over $300 (even if $300 exceeds your budget).

Let robots count your money. Budgeting apps like You Need a Budget ($84 a year) or Mint (no fee) track balances across all your accounts, giving you a clearer picture of your actual balance even if you have multiple cards and accounts from different banks. Some banks, such as Bank of America, also let you sync other accounts, even if those accounts are with competing banks. Check your balance in the app to ensure your next purchase fits your budget.

Try action planning. Determine your budget, then implement measures that prevent you from exceeding it. The Uber Credit Card has a feature that lets you create a self-imposed spending limit for certain categories or merchants, which could remove the temptation to stop at Starbucks on the way to work. Other companies, like Discover, allow you to set up alerts if your credit card balance exceeds a certain amount or you near your credit limit.

Whether your bill due date slipped your mind or you dont have the money on hand, blowing your due date can often mean a late payment fee of up to $39 and a penalty A.P.R. (an increase in your interest rate, typically triggered by late payments). Youre unlikely to incur a late fee with cash. You can set up autopay (most major credit card companies offer it) to have payments automatically deducted from the savings or checking account of your choosing before your bill is due. Paying your full statement balance via autopay is a way to avoid late payments and interest on balances.

But you might also be anti-autopay, with good reason. If you dont have enough money when your bill is automatically paid, you could get hit with overdraft fees (typically around $35), and autopay might lead you to stop checking your statements, increasing the odds that you miss potentially incorrect charges, Ms. Harzog said. If thats you, there are still options.

Set up reminders. Whether its an alert in your digital calendar or a handwritten note in your planner, create a reminder to check that your account has sufficient funds and then pay your bill. Some companies, such as Discover and Chase, can alert you via text or email you ahead of your due date, a feature Ms. Bucher uses. I treat my inbox like a to-do list, so I dont delete the email until Ive paid my bill in full, she said. When I pay it off, it feels really good to delete the email.

Make bills part of your routine. Whether you opt to pay your bill when write your monthly rent check, or every Monday morning when you get into the office, build it into your schedule.

Still, credit cards are not for everyone, and even the best psychological tricks might not work for you. No one should ever feel pressure to use a credit card, Ms. Harzog said. If its not something youre comfortable with, start by using debit so you get used to the structure of paying with a card, and move on to a credit card when youre ready. If youre never ready, its O.K. to stick with cash, too.

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The Best Way to Use a Credit Card? Treat It Like Cash. - The New York Times