Our finances are at times distracting because of their complexity, their details or the feelings of urgency they create. This is especially true of your credit cards with their high interest rates and what seems like ever-increasing balances.
If your financial picture seems daunting and too big for you to change, it can be good to look at the little things. Even small adjustments can help you achieve your big goals.
Here are three seemingly minor changes that can help make a difference in the long run.
Don’t swipe the small stuff
The Urban Institute reminded people of two things. The first may be a trick you haven't tried before. They simply reminded people to use a $20 bill instead of a credit card for small purchases to save money.
By limiting how much cash you have on hand and not using a card in situations that aren't given a lot of thought, you can decide whether you have money left in cash or if what you're getting can wait.
Those reminders led to behaviors that helped those in the study reduce their debt over six months by as much as 2%.
Respondents under 40 years old had $173 less debt after six months. That's almost $30 a month you could be putting into savings or paying toward your debts.
Credit keeps charging
The second reminder was that when you put purchases on a credit card they end up costing on average 20% more unless you’re paying your balance off each month.
First of all, you should be paying off your credit card in full each month. Secondly, the average credit card interest rate is 15%, there isn't a credit card around that pays you enough rewards to make up the 15% they'll be charging you each month. Even if you're getting a great deal on a product, you're still paying another 20% on top of it if you don't have the money to pay for it right now.
The reminder helped respondents under 40 years old to reduce their debt by $160 after six months. That's $26 a month that can go to better uses than your creditors.
No credit, No impulse
At the last American Psychological Association convention, Sarah Newcomb presented a paper on focusing on the future to save money. Here's an excerpt from the APA's article:
One finding Newcomb said was completely unexpected involved those individuals who did not use credit: The effect of impulsiveness on bad financial behavior disappeared.
“This suggests that the first line of intervention for better financial health among people who struggle with impulse problems may be to stop the use of credit cards altogether,” said Newcomb.
Here's why money burning a hole in your pocket has stuck around so long as a saying. If you have a credit card that can probably cover most any purchase you would run into in the course of your day, you'll be tempted to use it.
If you're only carrying cash and what you can write a check for from your checking account, then you're a bit more limited in what you can and can't purchase.
Surprisingly, knowing you're limited leads to a lack of impulse in what you're purchasing. So if your credit cards have gotten you into some bad financial behaviors then maybe it's time to put them away.
As a reminder here are three little things you can do to help manage your credit cards better:
1. Use cash for small purchases under $20.
2. Remember that using credit and not paying it off adds 20%.
3. Removing your credit cards also removes impulsiveness that leads to bad financial behavior.
If you want to rein in your spending and manage your credit so you can pay off your debt quicker, get started with Mvelopes today. The Mvelopes budget app will help you plan and track your purchases so you can prioritize your financial goals.