Credit Loan > Checking and Savings Accounts > Checking Account Good. Credit Card Bad.

Using Your Checking Account

It is often very tempting to buy something using a credit card. It is even more tempting to buy something we can afford out of our checking accounts with a credit card, rather than drain our cash. There are numerous reasons not to give in to this temptation. The first is obvious. Unless you are paying for something with your credit simply because you don’t like carrying that much cash while on holiday or because its your only card and they’re going to cancel it if you don’t use it at least once this year, the odds are that the purchase will not get paid off right away. Thus, said purchase will accrue interest and wind up costing significantly more than its actual price.

There are of course, emergencies, where you have to use a credit card to get your car fixed unless you want the entire family hitchhiking back from Grandma’s. This emergency will also probably accrue interest, and it is just for such a reason that groceries and clothes should be bought out of a checking account if at all possible. Interest is not the only reason credit card purchases may wind up costing more than they would if paid for with cash, check or debit.

It is a well-known phenomenon that we tend to buy more when using a credit card, than we do otherwise. Whether due to the sense that it isn’t our money, or an inability to believe in the bill until it actually arrives, a $50 purchase made using only the funds in our checking account will grow to $100 or more using a credit card. “If I’m putting this on the card, I might as well put this, this and this too.”

The problem with this tendency is that it leads to ever-higher interest charges and other fees if we overreach our ability to pay the monthly minimum. Even if we can maintain that level or payment, it can still hurt our credit rating as our ratio of debt to income grows with every monthly bill -- and the inevitable need to buy groceries with the card, so that we can make the minimum payments. This leads to spiraling debt, bad credit and possibly worse. At best, a tomato winds up costing us $500, at worst it takes years to drag our credit rating back to a level where we can get a new credit card again.

Hopefully, in that time period, we will have learned how to stay within a budget, as well as how to rely on only the money we have in checking or savings.