Editorial Policy

Why My Credit-Only Experiment Failed

Allie Johnson

July 2, 2013

My husband and I recently did an experiment: We switched from using a combination of a debit card and cash to using mostly credit. I’ve always loved the idea of racking up rewards, and I wanted to see if we could keep our spending about the same while earning enough miles for a nice vacation.

I knew beforehand that research shows consumers spend more when using plastic. I thought that being aware of that fact, and the reasons behind it, might help us keep our spending in check. Well, the results are in: We spent a lot more on credit.

I now can see exactly why that happens. During the three months of putting almost all of our expenses on our credit card, (and paying the bill in full each month), I paid attention to my thought process while shopping.

Here’s an example of how my brain works when I’m using my debit card or cash:

  • I stop at the store to buy cat litter and I see some brightly colored beach towels. I think, “I want those. They’re pretty and we are planning to go to the beach this summer.”
  • I look at the price of the beach towels. If it’s too high, I think, “Ouch. No way am I spending that much on towels. Maybe I’ll look for some on Amazon later.”
  • If the price is OK, I think, “Where would the money come from?”
  • My brain quickly scans our monthly budget categories, and I decide the funds would come out of our household expenses category. I look at how much money is left in that category for the month and do a quick mental inventory of what other household items we’ll need to buy.
  • I decide not to buy the beach towels.

Now, here’s my typical through process when I’m using credit:

  • After I spot the beach towels, I glance at the price. If it’s not outrageous, it doesn’t faze me. I look through the towels, picking out colors and patterns I like.
  • As I grab the towels, I hesitate, wondering if it’s smart to add another $40 to the credit card balance. I feel slightly uneasy, but then I think, “I’ll worry about that later. I’ll check the balance when I get home and, if we’re spending too much, we can pull back later.” I feel relief about getting to enjoy my purchase without worrying about money. For a few minutes, I feel rich.
  • I start dreaming about our trip to the beach, and I think, “Oh, maybe I should pick up some sunglasses and a new cooler while I’m here.” I add those items — and maybe a few more “necessities” to my cart. I check out, painlessly swipe my card and leave with a bag full of items.

So, it’s not always big, extravagant items that run up a credit card balance. Spending a little bit more on each trip to the store adds up over time — and it’s inexcusable, considering how well you can make do when your default mode is not to buy stuff. Maybe I would have found an old pair of sunglasses I misplaced, and we’d have used the cooler we have — which is fine, except that it doesn’t have a spout for water to drain.

I won’t deny that it can feel more pleasant to go shopping on credit. As personal finance blog The Frugal Path points out, parting with cash is actually painful because you witness the actual disappearance of the money in your wallet . That’s part of why consumers spend less with cash. If you do want to use credit, but want to avoid overspending, here are a few tips:

1. Make a budget and stick to it. When you’re using credit, it can be tempting to put off budgeting because you feel as if you have an unlimited supply of money. That leads to overspending.

2. Pretend you’re paying with cash. When you go out to dinner with only $50 cash in your pocket, you’re pretty much forced to make sure your total with tip stays under that amount. One trick that has worked for me is to pretend I’m paying with cash — though it does take some effort to add up menu prices in my head when I know I’ll just pull out my card to pay.

3. Don’t factor rewards points into a purchase decision. Do not buy something to get the points, The Frugal Path wisely warns. Say, for example, you spot a nice couch on sale for $1,000. You don’t really need a new couch right now, but you like it and you want to earn miles for a trip to Mexico. You could have banked that $1,000 and had enough to buy two plane tickets. Instead, you will get a piece furniture you don’t really need and about $10 toward a plane ticket.

4. Pay attention to your thoughts when you buy. Be being completely honest with yourself about whether you’re tempted to spend more when you use plastic. If necessary, track your spending for a couple months when using cash, and then do the same when using credit.

I came to the conclusion that I am more likely to spend extra on credit. So, it’s back to debit and cash for us.