Just ten years ago, it was practically unheard of for anyone to use a credit card for anything but a major purchase. Credit cards were for luxury items and big-ticket purchases only- today, more and more Americans are ditching cash and relying on credit cards for purchases as small as a candy bar or cup of coffee in the morning.
Freedom Debt Relief has found that the number of Americans who prefer to use cash for smaller purchases is falling steadily- at the same time, the number of Americans who rely on credit for small, everyday purchases is rising. A survey by CreditCards.com found that the percentage of consumers who prefer to use credit cards for in-person purchases of $5 is about 17%, 6% higher than just one year ago. The number of consumers who prefer debit cards and cash for these types of purchases has fallen about 3% each from the previous year as well. Freedom Debt Relief predicts that this trend will continue in coming years, and credit cards become more ubiquitous and more and more retailers and business owners begin to cater to the public’s desire for credit availability.
While the increase in credit purchases may seem like an easy way to slip into debt, this may be a positive indication that consumers are becoming smarter to their credit profile and how credit scores are calculated. One of the easiest ways to build a credit profile recommended by Freedom Debt Relief is to charge small purchases that are easily paid off in full every month. The key is controlling the spending amount, and to ensure that you are not charging more to your credit card than you are able to pay off in a single month.
Experts agree that there is little reason to be surprised at the increase in credit card usage; credit cards are convenient, allow the consumer to have the exact amount of money they need every time, don’t force surcharge fees like ATMs, and allow consumers to avoid the hassle of change. Additionally, credit cards offer a safety net for buyers- credit cards offer fraud protection, and are easily cancelled when lost or stolen, as opposed to cash, which is essentially gone forever if dropped or lost.
This is not to say that the dangers associated with overspending on credit have gone away. A large percentage of credit score composition hinges on making regular on-time payments; missing payments can cause a lapse in credit while also adding interest payments that can quickly become overwhelming. Many consumers find that it’s all too ways to overspend when using a credit card- some shoppers have compared using plastic to spending “Monopoly money” instead of their own cash. However, these risks are controllable, and the old-school advice to swear off credit cards completely often does more harm than good when it comes to those looking to build up their credit profile. Freedom Debt Relief advises anyone considering opening a new credit account to carefully consider their personal income and expenditures to avoid falling into the trap of interest accumulation.
So how can you take advantage of the surge in credit card usage while avoiding the pitfalls of overspending? Freedom Debt Relief recommends that if you are struggling to build up credit, an excellent strategy is to open a single credit card and make a few small (under $20) purchases a month. The key is to make sure that you’re only charging as much as you are sure that you can pay off in a month- that will make sure that you don’t accrue any interest, and can still reap the rewards that your credit card offers like cash back or airline miles.
Credit cards are no longer reserved for major purchases- you can hack the credit game by creating a controlled budget and paying down your cards completely every single month. Writing down your daily expenditures and resisting the temptation to overspend will leave you with a higher credit score at the end of the month.