Improving Your Spending Habits by Cutting Back on Credit Cards

For one of the richest countries in the world, Americans aren't always the smartest about wisely using their money. Less than 25% of Americans actually have money left over when their paycheck is spent, so it's no wonder we've turned to these plastic cards to help us through life. Minimum wage and inflation only add to the burden, and unpleasant surprises such as the surge in gas prices this past summer leave many believing credit cards are the only way to survive.

College grads are the most susceptible to the pressures that credit cards seemingly relieve: just starting out, most of them have never received any form of financial counseling and are forced into a new, unfamiliar situation alone. With loans, rent and other monthly responsibilities looming over their head when many of them are working at entry-level jobs, credit cards are just too irresistible. But falling for the allure of plastic can end up costing you a lot more than you bargained for.

Take a look at your spending habits. Yes, right now. Maybe it's time to start a budget, either on the computer with a Microsoft spreadsheet or the old-fashioned way on paper. Keep track of everything you spend for one to three months; this way you can see where you're running into trouble and need to cut back. Record every single purchase, from the Big Mac at McDonalds to the $200 pair of shoes you just couldn't pass up. This will also help you adjust accordingly as your needs change (for example, if gas prices skyrocket again) so you won't come up short.

Credit cards certainly have their place in the world, and I'm not trying to say they're the invention of the devil. When used properly, they can even assist you in building your credit and come in handy for the big purchases, like a house or car. But whipping them out every time you're at a store or restaurant will quickly land you in hot water.

What are some of the reasons people use when paying with a credit card? The first and most obvious one is "I need/want/will die without ." College students are grads are especially susceptible to this reason, and use it to justify purchasing almost anything. Often they have difficulty making the transition from child, where most necessities and many wants were "magically" given to them by parents, and adult, where they have to be the decision maker that determines needs from wants. The easy way to battle this pitfall is to look at the budget you've made (you have been paying attention to this article, right?) and allocate enough money for your rent and other monthly bills. Then take what's left over and divide it up however you please. It's amazing how clear the "needs" and "wants" category becomes when you see how much you can afford after bills.

The next most common reason is "That's what minimum payments are for." Wrong. Even if you could afford the minimum monthly payments, it's going to eat into your income like no tomorrow and you'll find yourself paying far more than what the item originally cost, and sometimes it will take years. Do you really want to spend the next 10-15 years paying off a stereo system that will probably be surpassed by newer technology long before then? Try to pay more than the minimum each month; the faster, the better. Then you can concentrate on the important things, like investing the money or socking it away into a savings account.

The last reason I hear most often is "When I graduate/get a job/get a better job/inherit my rich uncle's estate I'll be able to pay it all off." Many students think that the income they'll make when they graduate or find a better job will be more than enough to pay their bills and other expenses, but you have to factor in the rent, utilities, auto/health insurance, and clothes for work in the figure. And what if your plans include law, medical, or grad school? There are no guarantees in life, your future financial situation included. Budgeting now is your only real chance of avoiding trouble in the future, and helps you avoid the financial woes your less-prepared fellow students or colleagues will have to endure.

If you've already gone down the deep, dark path of credit debt, stop immediately and reverse course. Pay off the debts you have now and try not to charge anything for a while, sticking to cash - and your budget. It's not too late, so don't give up and plunge ahead into further troubled waters.

As long as you keep track of everything you spend and realize that every penny you charge you'll have to pay back with interest, you're already ahead of the game. With a little bit of strategy and the help of a budget, you'll be well on your way to a secure financial future.