Using Reward Credit Cards for everyday purchases leads to overspending. Find out what happened when I switched to debit cards for 90 days.


Why I Stopped Using Rewards Credit Cards

In October, 2019, I wrote an article about why I continued to use Credit Cards for the Rewards and pay them off every month, but most people shouldn’t. Shortly after writing it, I realized that I actually didn’t like the article very much.

I give a lot of financial advice. And, I try not to recommend things that I’m not willing to do. A good financial strategy should generally be good for everyone.

The basis of my old Reward Credit Cards recommendation was that you should only use them if you’re a huge nerd like me. I look at my transactions every day on Mint.com and I track my finances more than anyone else I’ve ever met. I know my Undetailed Budget forwards and backwards. And, I have lots of spreadsheets. I am a very analytical nerd, and knew I had 100% control over my spending.

As a result, I also knew that I was only using my Reward Credit Cards for purchases I would have made anyway. So, why not get the 1.5% to 2% cash back? It’s free money for doing what I would have done anyway!

But, instead of just making a recommendation that I wasn’t willing to follow, I wanted to prove it. So, starting on January 1, 2020, I switched to my debit card. My plan was to do three months with just the debit card, and prove that my spending didn’t change a penny.

Well, I was wrong.


What I Learned

In 2019 I earned $507 in cash back from different credit cards in a mix of 1.5% and 5% programs. That comes to about $40 per month.

In January, February, and March of 2020 I put the Reward Credit Cards in a drawer and only used my debit card for everything.

In those three months, my discretionary spending decreased by at least $60 per month! The reduction in spending more than made up for the lost cash back rewards. I was shocked.

Your Last $100 is Precious

After going through the exercise, I now understand exactly why it happened. The key is how I set it up.

Each month I have a budget for personal spending. In the past, I would try not to spend more than that on my rewards card. Then, I would pay it off every month.

When I was using a credit card, as the month progressed, the balance would slowly increase… approaching my mental limit for the month. Some months I would go over by a few dollars, some months I would spend less. It all worked out.

During this experiment, I put exactly my budget for personal spending into a checking account for the month. When I was using my debit card, the balance would slowly decrease… approaching a hard limit of $0.

I found that when I got down to my last $100 in the account, those dollars became very precious. In the first three months of 2020, my account never fell below $60.

Another Example

Let’s say your discretionary spending budget is $1,000 per month.

If you’re using your credit card and you’ve spent $900, you know you still have another $100 to spend. And, if you go a little over, it’s really not that major.

But, instead, imagine using a debit card. You start the month with $1,000, then you spend $900. Now, you only have $100 left.

That last $100 in the debit account is much more precious than the $100 that would take your credit card from $900 to $1,000.

As a result, I was subconsciously much more careful with every dollar.


Side note: part of what made this work was that I didn’t just add the same amount every month to my checking account. Instead, I replenished to my monthly discretionary spending balance. So, if your monthly discretionary spending budget is $1,000, then at the beginning of the month add enough to get your balance back up to $1,000, don’t just add $1,000 to whatever is left.


90-Day Challenge

Not sure if this will work for you? Give it a try!

Everyone who uses Reward Credit Cards believes that they have their spending under control. They think they are spending money that they would have spent anyway, so they might as well take the free Cash Back.

Time to prove it.

Using a checking account that will only have your spending money available, try to use a debit card for 90 days. See what happens!

But, be sure that this checking account only has your spending money in it. If you use a checking account that has some emergency savings, or extra income, or whatever else as a cushion, then this won’t work.

The key is that this account will be overdrawn if you overspend. You are creating a hard barrier between you and overspending.

If it works, great!

If not, that’s okay too!


Using A Debit Card Will Not Make You Rich

I am going to stick with the debit card from now on. I don’t like recommending something that I’m not willing to do myself.

The reality is that changing from my Reward Credit Cards to my Debit card has decreased my spending, but only a tiny amount. I earned $507 in Cash Rewards in 2019 . In the first three months of 2020 my spending was about $60 less per month than it would have been on my Rewards Cards. If I stick to that average, it means I will spend about $720 less in 2020 than I would have. But, I will also have $507 less income. So, the net increase to my financial well being is only about $213 per year.

An extra $213 per year is not going to make anyone rich.

So, if you are very disciplined with your budget and track every dollar, it may not matter very much. You can feel free to use Reward Credit Cards or Debit Cards.

But, if you haven’t made the financial progress you’d like, then maybe it is time to switch. When you are trying to escape the paycheck-to-paycheck life, then every dollar matters. And, if switching to a debit card can help you squeeze $50-$100 out of your budget every month, then it is totally worth it.


Final Thoughts

I have been using Reward Credit Cards for over 20 years. It all started with my Discover Card in 1999. In all that time I have never paid a penny of interest to a credit card company. I pay the cards off every single month and sit back and collect the “free money.”

But, I don’t recommend this strategy. I am a super practical, financial nerd. I love analyzing my Undetailed Budget, my income, my spending… all of it! And, I know that I’m pretty unique.

So, in the past I have said “do as I say, not as I do.”

But, after just 90 days of using a Debit Card, I am convinced. Using a Reward Credit Card for every day purchases leads to accidental overspending.

Maybe you’re like me and the amount of the overspending is very small. Or, maybe you’re more normal and the amount gets out of control sometimes. Either way, I’m pretty sure that if you switched to a Debit Card, you would spend less.

But, I’m also pretty sure that the net impact on your financial life will be small. Cutting up your Reward Credit Card will not make you rich. But, it will help you take full control of your money.


I hope this has been helpful! I welcome your comments with your thoughts and questions. And, don’t forget to subscribe to the newsletter to get notified whenever a new article is posted.

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