Credit and Debit Cards and the COVID Crisis
If you had asked me a year ago, I’d say with certainty that when it comes to choosing between paying with cash or credit, a little pain is worth substantial gain—cash is a little less convenient sometimes, but it pays off in the end.
Since COVID-19 has struck, many businesses and organizations have asked us to change the ways that we interact with them – sanitize our hands, stay two meters apart, book appointments/consultations and wear a mask when doing business. Businesses have also pivoted from accepting cash to only accepting credit or debit cards for our purchases. In the past four months, we have moved further toward a cashless society than I’ve ever seen before.
While likely safer, from a health perspective, credit and debit purchases can be financially dangerous, especially in times fraught with economic uncertainty. What does this mean for our budgeting efforts and spending habits?
Researchers have proved that credit and debit cards make it easier for the average person to spend without giving it a second thought, even up to 100% more than if they’d used cash. They mask the “pain” associated with spending money.
Credit and debit cards make us more likely to:
- Make riskier financial decisions – swiping or tapping a card does not feel like you are giving up as much as when you have to hand over cold hard cash.
- Ignore or lose track of budgets we have set for ourselves, undermining good habits.
- End up paying more for an item than the original purchase price when we only make the minimum monthly payments on our credit cards.
So what can we do to protect ourselves financially when using credit or debit?
A few fairly simple steps can make a big difference:
- Continue to set a budget as you normally would.
- Collect all transaction receipts to track your spending.
- Review your statements regularly – many service providers categorize your spending so you can easily track it.
- Download your spending into an Excel spreadsheet or an app for easy tracking.
- Use cash whenever you can.
I guess the saying still holds true, some short term pain (paying with cash) leads to long term gain (less debt and regret)!