They’re quick and painless—and there’s no writer’s cramp or envelopes to lick. Electronic payments using credit cards, debit cards, money transfer apps or e-checks are more popular than ever, accounting for more than half of consumer spending. But convenience comes with a downside. “When you use cash or checks, you know the money is finite,” says Mike Peterson, co-founder of the American Credit Foundation and author of Reality Millionaire: Proven Tips to Retire Rich. “Electronic payments take away that tangible feeling of spending, so it’s harder to keep a lid on expenses,” he adds. This out-of-sight, out-of-mind mentality isn’t lost on credit-card companies and banks, which are experts at raising rates or sneaking in fees and extra charges when you’re not looking. But while rising costs are eating up more of your hard-earned dollars, you can get a tighter grip on spending, whether it’s plastic, online or both.
View your credit-card charges online weekly or biweekly to keep better track of your balance, which will give you the opportunity to pull back if you’re spending too much. Another plus: “You’ll catch any fraudulent charges to your card more quickly,” says Bob Sullivan, author of Gotcha Capitalism: How Hidden Fees Rip You Off Every Day—and What You Can Do About It. You can’t do this with debit cards, so unless you log that spending in a ledger, you won’t know how much money is left. For a heads-up on your debit-card balance, ask your bank to automatically send you an email when your funds drop below a certain point. “A good buffer is at least $200,” says Emily Davidson, who writes about personal finance.
If you pay your credit-card balance online, send the money at least two business days before it’s due. Banks have their own schedules for downloading payments and if they receive them even a few seconds late, they shift the transaction to the next business day. That means your payment could be tardy even if you hit the “submit” button on time, and you could be charged a $25 to $35 late fee, plus interest on the unpaid balance.
Try budgeting a certain amount of pocket cash per month and committing to spending only what you carry for small purchases. That will also help you curb impulse buys and save anywhere from $200 to $300 a month.
Open all mail from creditors like utilities, insurance companies and anyone else you’ve authorized to make automatic deductions from your bank account. What looks like junk might be notice of a lost or late payment that could generate fees and lower your credit rating, says Davidson. Call customer service right away to clear up any confusion, and a rep will likely update your account and waive the fee immediately.
When sending e-checks, don’t use the feature that automatically fills in the amount of your last remittance. If that figure is lower than your current balance and you forget to change it, you could get stuck with a penalty. This is especially true with large deductions that tap your account once or twice a year, such as home insurance.
Resist the temptation to open store accounts so you can save 10 percent or 15 percent on purchases that day. You may spend more to take advantage of the deal, plus you’ll trigger an inquiry into your credit history. Though standard procedure, any inquiry can cause doubts about your creditworthiness among other lenders, all of whom have access to your credit. As a result, opening a new card can drag down your credit rating and raise rates by 2 to 3 percent for more important debt like a future mortgage or car loan. If you must open a new card, scan the agreement for the words “universal default,” which means that any problem with one card, like a late payment or error, is reported to all your creditors and can trigger across-the-board interest-rate hikes that could cost you hundreds of dollars a year. Call the company and ask to have the default provision taken off your account. If it refuses, find another that will honor your request.
Don’t close cards you already have unless you’re being charged an annual fee. Having fewer cards can hurt your credit rating by lowering the grand total of spending limits allowed on all your cards, making you look like a worse risk. If you’re trying not to use it, put it away in a file instead of carrying it in your wallet.
Your brain says “ouch.” When you fork over a few bills and see your thinner wallet, the insular cortex, a region that registers negative emotions, becomes more active than when you use a credit card.