10 Steps to Break the Credit Card Habit

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Last updated on February 27, 2023 Comments: 14

Credit cards offer convenience, security, and rewards. Overspend with a credit card, however, and the interest and fees can bury you. Here are 10 tips to stop using credit cards.

If you’ve got a bad credit card habit, chances are you know it. Whether or not you’re willing to admit it is a whole other story. But admitting you have a problem is the first step to making changes.

If you can answer yes to any or all of these questions, you need some major changes:

  • Do you pay interest fees when you send in your credit card payment?
  • Have you ever paid your credit card late because you didn’t have the money for the payment?
  • Do you use your credit card when you don’t have enough cash?
  • When your issuer raises your credit limit, do you spend more because you can?

Credit card companies just love credit card users like this. They pay interest and late fees. They spend more on their credit cards, too.

This means credit card companies can charge merchants for more transactions. Altogether, these credit card users are the ones who are putting food on the table.

And putting more money in the pockets of credit card issuers means you’re putting less money in your own pocket. So the goal should be to stop these bad credit card habits. Instead, work to get to a place where you can use credit responsibly. This means taking advantage of rewards programs but never paying interest or fees.

Don’t think you can do it? Think again. Take these ten steps to systematically break your bad credit card habits.

1. Look at your spending carefully

Deep down, maybe you know your credit card habits have come about because you’re spending more than you earn. And this is a self-perpetuating issue. Once you get stuck in the cycle of paying interest and fees, it becomes harder and harder to get back to spending less than you earn.

So your first step is to track your spending faithfully. You can do this on a pen and paper. Or an Excel spreadsheet. Or you can use a program like Mint.com that will automatically import your transactions.

The key here is to total up all of your spending from all sources–credit cards, checking account, savings, and cash. Keep this up for at least a month, and you’ll see where you’re spending money you shouldn’t spend. Keep it up for multiple months in a row, and you’re likely to find that you automatically reduce your spending.

2. Create a new budget

Once you’ve tracked your budget for a month or two, you can see what you are spending versus what you should be spending. Now it’s time to actually create a new budget. This budget should be based on the money you actually make each month.

Again, you can do this in different ways. You can stick to cash-only spending. Or you can use a program like as Empower or Money Patrol to track where you stand in various budget categories. Either way, you’ll need to use discipline to make sure you stick to your budget. The best way to do this is to cut back on spending slowly, particularly in essential areas like groceries.

Try to take your grocery spending from $500 per month to $200 per month overnight, and you’ll probably fail. But you can succeed by cutting just $20 per week from your spending. Keep doing this until you reach a comfortable, but frugal, level of grocery spending.

You can do this with other areas of your budget, too. The key is simply to budget for what you need and then stick to the budget. This will be more possible if you consistently check in on your spending. Make this a habit, and you’ll find you’re more likely to stick to your budget.

(Personal Capital is now Empower)

3. Build an emergency fund

This step can take some time, especially if you’re in the habit of overspending rather than saving. But find places where you can stash back even $10 per week. Over time, you’ll build up a pad of savings that can help you in an emergency.

Start by opening a high-yield savings account. Then, begin with the first goal of putting about $1,000 into the emergency fund. Sure, you’ll eventually want to save three to six months’ worth of expenses. But this can take a really long time. Starting with this smaller goal lets you be prepared for minor emergencies, which can help you cut back on credit card spending.

Remember: an emergency fund is to be used in true emergencies only. This doesn’t take the place of your credit card. The purpose of the emergency fund is to remain untouched for regular expenses but accesible when major spending is required. Some examples might be the loss of a job or a significant medical expense.

For more details, see Five Components of an Emergency Plan, but ignore component number four.

4. Stop using your credit cards

Building up an emergency fund is essential for this step to start working. If you’ve consistently used your credit card for minor emergencies, you’re relying on it too much. When you have a bit of money in savings, you can reduce your credit card dependency. And this can let you stop using your credit cards.

Now that you’re living on a budget, you should not need to rely on your credit cards anymore. Instead, you should only be spending the money that actually comes into your bank account each month.

So stop using your credit cards. You might want to take baby steps here. Start by simply leaving the cards at home all the time. Then remove them from your PayPal account and other automatic online payment options. Then, start shredding them, which will lead you to the next step.

5. Destroy your credit cards except for one or two

You can play this one of two ways. If you’re disciplined enough, you can simply destroy the physical credit cards and remove them from your online accounts. This means you’ll stop spending on the cards but won’t actually close the accounts. This is because closing old credit card accounts can actually damage your credit score.

But if you have a serious problem, this may not be enough to stop your overspending. Instead, you may need to go as far as actually closing your credit card accounts. Overspending, after all, is a larger issue than getting a better rate on your next mortgage. So if you want to really take away your ability to overspend on credit, you can close the accounts.

However, you’ll only be able to close accounts that have no outstanding balance. You may want to skip to step seven if all of your cards have an outstanding balance.

6. Lock away your remaining credit card

Now that you have one credit card left, realize that you will not be using this card for everyday spending; for now, cash is king. Put your remaining credit card out of sight. Lock it away. I’ve even heard of some people who put their credit card into a cup of water in the freezer. The extra step of breaking a block of ice to get to your credit may be an extra demotivator.

Why keep a credit card at all? You may need it in a real emergency before you emergency fund is fully built up. But making it difficult to access will mean you’re less likely to use it for non-emergencies.

7. Consolidate your balances onto one or two cards

Gather the latest statements for the cards containing balances. Choose one or two with the lowest interest rates, and consolidate your balances onto these cards. By calling the credit card company, you can provide the information for your other cards with balances. Then they will initiate a balance transfer. Ask for a transfer fee waiver. If they aren’t willing to waive the balance transfer fee, consider using a different card to consolidate your balance or apply for a great balance transfer credit card.

Another option is to look at an unsecured personal loan to consolidate your balances. This type of loan can get you into a lower interest rate and help you pay off your credit card debt more quickly. Plus, once you’ve consolidated debt off of some of your cards, you can then close those zero-balance accounts.

What if you don’t have good enough credit or enough available credit to consolidate your debt? In this case, you’ll need to skip to steps eight and nine. You can make this work without consolidation. Consolidation can just make it easier.

8. Enact a cash-only policy

Once you’ve lived without your credit cards on hand for a couple of months, your budget should be in a good place. Now you know what you can and need to spend each month. So now you can enact a cash-only policy.

This doesn’t necessarily mean you have to spend physical cash. But that can be a good idea. Spending cash actually helps you spend less money. But spending cash can also be unwieldy at times. So another option is to keep cash on-hand for certain expenses, such as groceries, but to use your debit card for other expenses.

The key is that you have to actually have the money in hand–either physically or in your bank account–to spend it. Getting into the swing of this can be difficult. But, trust me, it’s worth the learning curve. Once you start spending only what’s coming in, you can turn your attention to spending less than what you make. And this is how you’ll really start to make financial progress.

Go Cash Only – With a Debit Card

Empower Logo 210x100

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9. Pay down your balances

Now it’s time to start reversing the damage you’ve done with your bad credit card habits. You’ll likely need to pay more than the minimum payments on your accounts to start getting out of debt. So use that money that you’ve suddenly found in your now-strict budget to get this done.

There are a couple of different ways to pay down your balances. And, really, either one is sufficient, as long as you keep on keeping on. One option is the Debt Snowball method popularized by Dave Ramsey. This has you start paying off your smallest balance first. Once that balance is paid off, apply its minimum payment and any extra money to the next-smallest balance.

The advantage of the Debt Snowball is that you get some quick wins upfront. This can help you stay on track as you work towards paying off larger and larger balances.

The other option is the Debt Avalanche. This has you start with the highest-interest account first. Then pay off lower-interest cards as you move through your debts. The advantage of this approach is that you wind up paying less interest over time.

The Debt Avalanche is the most logical way to pay off your debts. But it doesn’t make a huge difference unless you’re in a lot of debt or have a big differential between your interest rates.

You can check out a more in-depth discussion of these two options here. But, really, the main issue is that you start paying off your debts and keep on with it until your credit cards are paid off.

10. Check your progress each month

Paying off debt takes time and dedication. You’ll need to keep moving forward towards your goals, even when things get tough. One way to keep making progress is to see how far you’ve come.

The best option is to come up with a way to consistently track your balances each month. You’re already checking in on your spending frequently, right? Well, make a chart where you keep track of your credit card balances month after month, and watch as they disappear.

You can do this with some budget-tracking softwares. Or you can create your own spreadsheet for tracking your credit card balances. Either way, be sure you’re checking in at least once a month to keep track of your progress. Seeing how far you’ve come will help you keep moving forward until you finally break your bad credit card habits and reverse the damage they’ve done.

Article comments

B .UTAH says:

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My ex wife till the divorce had her score too good before she took off,and since then i have do away with late payments but recently i got a letter from collection that im being garnished for her debt and the decree states she is solely responsible for that bill which made me put her on call and during the conversation i got to know she has been bankrupt, $9000 repo which will be settled by me.
i am with a mortgage of $970 that has been late,went into collections which has impact on my score,all this are set backs for a good credit achievement
i am indebted to Freedom who came to our rescue by shooting up my score,all payments paid,repo removed in a matter of days.
it can only get worst if you allow it,no one will be liable to your ignorance.whatever way or method used is not necessary but the result achieved.

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Anonymous says:

Breaking the credit card habit is a hard habit to break especially if you have no sense of money. When people get in to deep with debt it’s very hard to get out.

Anonymous says:

I know when I first received a credit card I was a type A user. After years of making the credit card compaines rich I have learned better. You make some great post.

Anonymous says:

Wonderful post! I’m less than $3,000 away from my goal of no CC debt, and I’m getting more excited every day. I locked away my credit card, and this has helped; in the past, I’ve promised myself that I would pay off the card, and then just used it again and again, for ‘little’ things. Well, those little things add up!

I used to be an ‘A’, now moving to a ‘B’!

Anonymous says:

I had never heard about credit card companies moving people to higher transaction fee cards if they weren’t making money with them. I have noticed that my rewards points are only worth about half of what the use to be.

Anonymous says:

Good consolidation of ideas. For my life Ive swung pretty wildly back and forth between type A and type B. ..which I think is the story for a lot of people.

Anonymous says:

Great advice! Unfortunately, I was so a “Type A” user. Your right it’s a psychological habit that you have to break. I’d add one suggestion: some form of accountability. Having a blog where I post all my spending is really forcing me to stay on track!

Anonymous says:

I like your suggestions. I’ve enacted most of them. I’m making measurable progress using these ideas. I’m still taking a few steps forward and one or two backward, but this really can work.

Remember, if you don’t have the card in your wallet it is impossible to use it!

Anonymous says:

Great advice-

Credit card companies today are nothing more than loan sharks. As the current credit crunch moves into unsecured debit credit card companies will pay a price but the consumer will again take it on the nose.

Anonymous says:

“On the other hand, Type B users, who don’t pay interest or fees, are shifted to cards with higher interchange fees.”

I’ve always been type B, never paid a penny in interest, but as of yet nobody switched me to another type of card as far as I know. The only thing that came close was a recent letter from AmEx with an application for a different card – the one that simply requires payment in full each month – “just right for you”, in addition to the one I have. The letter claimed having this card will “increase my flexibility”. Sounds fine – since I pay in full anyway, what is the difference, right? Oh, but there is a catch – after 1st year this new card has $150 yearly fee. Needless to say I shredded the new application. But they didn’t take away my free cashback card, they just wanted to steer me towards their other card I suppose.

Anonymous says:

Good article. I began as a type B, then changed to type A, and finally came to the point where I will not use credit. There are rare exceptions, like when a department store will give a discount for using its card. I’d rather pay outright, but will use the card and pay it off immediately. I rarely use cash, preferring debit cards.

As far as how best to destroy the credit cards, this looks like the best way to me: link You don’t even have to find different disposal places for the pieces!

Well, the idea is good, but I don’t endorse the product 😉

Anonymous says:

I’d have to agree with Dave’s version of the snowball, just because I’ve tried it both ways and having a $0 balance was much more of an incentive to keep going than “Oh, look how much interest I saved on this huge balance I still have left!” Putting a chunk of money toward the high interest balance and seeing barely a blip in my total amount due was very defeating. But everyone’s brain works differently. 🙂

I’d also reinforce what you mention in the Debt Avalanche – 3 to 6 months expenses in the e-fund is ideal, but start with $1000 and focus on paying off the debt, especially since the interest rate on your savings account is probably less than the ones on your credit cards.

And it’s dangerous to ignore your credit score *too* much, just because it can effect everything from getting a job to finding an apartment to rent. Destroy the extra cards, definitely – but I’d be wary of closing them unless the ratios of available credit to credit used on the lower-rate were extremely low. And that could be one more psychological blow, to do the “responsible” thing and see your score plummet.

Anonymous says:

Correct on all points.

Just in case someone reading this post still needs some convincing that they should break their credit card habit, I suggest they take a look at this post about the credit card industry’s “trips and traps” to keep them in debt: link

I believe you will come back here after reading it and implement this 10 step plan ASAP.