The best way to manage your cash flow and credit card debt is deciding whether to pay with a debit card or credit card.
Debit Card Cash Flow Is Immediate
A debit card or an App tied to the debit card generally provides the least risk of excess spending. Debit card activity is immediately deducted out of the checking account. Additionally, debit card spending is limited to the balance in the checking account.
Credit Card Cash Flow Is Delayed
Credit cards are provide the most cash flow and debt risk when paying for an item. The spending limit on a credit card is tied to a very high credit limit. Additionally, the limit no relation to amount of your savings. Additionally, it could be 30 or more days until you are required to pay the credit card processor. For those with financial discipline this delay in cash flow is seen a benefit. Conversely, for those without financial discipline, this delay in cash flow can cause them to spend on the credit cards above of their ability to pay.
Credit Card Spending Limits Are Not Tied To A Bank Account
A debit card provides a one to one relationship of one debit card to one bank account. Therefore, you can only spend up to your bank balance per debit card. Unlike debit cards which have a one to one relationship to a bank account, you can have as many credit card accounts and just a few bank accounts. It is not uncommon for the combined credit limit all of your credit cards to exceed your savings. This is how individuals wind up with $30,000 or more in credit card debt with little or no savings.
Stop Using Credit Cards If You Carry Any Balances
If you carry any credit card balances, lock them in a safe place, and only use debit cards or cash. Carrying a credit card balance demonstrates that you do not have the financial discipline to use credit cards effectively. Go to Step #1 of my cash flow system and learn how to become financially disciplined. Once you have zero credit card debt, then carefully start using credit cards again.
Pay Your Pre-Funded Recurring Expenses With A Credit Card
For those that do not have a credit card balance, use your credit card for expenses that have already have been funded in your recurring expenses account. So, if you have your car insurance is due, and you have funded the amount in your recurring expenses account, swipe away. If you don’t know how your are going to pay for the item you are purchasing with your credit card, then you can’t afford it!
Pay Your Discretionary Expenses With A Debit Card
As for debit cards, carry just one, and link it to your primary checking account. My cash flow system is set up so that your primary checking is your discretionary spending money from paycheck to paycheck. So, when is time to buy that grande latte, swipe away with your debit card. When your checking account gets down to zero, then the debit card is put away until the next pay period.
Tie Your Retail Mobile Apps To Your Debit Card
Next, it is time to address a new category, retail reward mobile apps, such as Starbucks, Dunkin, and Uber. Retail mobile apps are for the convenience of paying for discretionary items. Therefore, you must link the apps to your debit card.
Think Before Your Swipe!
By sticking with the strategy above of when to use use a credit card or a debit card, you should never carry a credit card balance, and it will help to keep your discretionary spending in check.
The Easier The Better for Credit Card Processors
The goal of Retail merchants and credit card processors is to allow you to spend your money as easily and as quickly as possible. Why even take your credit card with you or out of your wallet? Just use one click checkout, Face ID, or tap your phone on the register! Keep in mind that all the advertisements about making it easy to pay for items is targeted towards you, when in fact, it is really meant for their benefit.
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