Cashback Credit Cards vs Debit Cards

ccdorset

Hello,

I have the American Express Platinum Cashback Everyday Card and have been using it for the past 6 years. Last year I got around £80 cashback from it.

However, I am a spender and I feel my spending recently has been getting out of control. I’m thinking using a debit card might be better for me in terms of trying to budget properly, pay off other unsecured debts (at 0%) and save more.

My thoughts are that whilst I would lose the cash back every year, I think using a debit card would encourage me to make better spending choices and I think the reduction in impulse purchases is likely to far outweigh the £80 cashback.

I was just wondering if anyone had made a similar decision to move away from credit cards altogether, even though you lose the cash back benefits?

Thanks

David

D3xt3r5L4b

Depends.
Do you need the S75 protection etc?

ccdorset

D3xt3r5L4b said:

Depends.
Do you need the S75 protection etc?

I hadn’t thought of that, I guess I could keep it for larger purchases over £100 only. Maybe best I keep the card at home though so at least it’s not in my wallet all the time!

Malkytheheed

I suggest you should read an audiobook on budgeting and money management. "I will teach you to be rich" is good. As is "total money makeover' and "the richest man in Babylon". They will teach you how to stop spending and start making your money grow. Well worth while. 

Good rule of thumb is that if your wealth and net worth isn't increasing every single year (and I don't mean 1% "savings") then you are going quite wrong! 

jet01

There is an argument to be made for using old fashioned cash or a debit card if you are having trouble raining in your spending, Dave Ramsey, a evangelical American version of Martin Lewis, makes this his golden rule for managing spending and insists no should let themselves be tempted in by credit card rewards. 

When I was spending more than I wanted to be a couple of years ago I deliberately stopped spending on reward cards, which I used to pay off monthly, and opened a Starling account as a secondary bank account to use for all my day to day spending. I got paid in to my main current account and paid all regular bills from that account too, made a transfer to a savings account and then the rest put into my Starling account. Because Starling  shows all transactions in real-time it made it really easy to monitor my spending on a day by basis and see what I was spending on what and see where I could easily cut back. Also because you get a ping on your phone every time you make a card transaction it felt psychologically like you had spent money and made you think about spending in the same way you do cash purchases, whereas when a card bill is automatically been collected by DD at the end of the month you don’t really think of spending on a CC in the same way in my opinion. 

Overall it definitely helped me to cut back and budget more effectively and I know I saved more than I would have made in rewards from my old Nationwide Select rewards card, that would be even more so now that that cash back has been cut to a measly 0.25% than it was then. I have Been tempted back to using a rewards card recently now that money is a little less tight, mostly to benefit from the introductory Amex offer, but I have deliberately set the card up on Gpay so I get the notification in black and white every time I spend on the card and I frequently monitor transactions in app regularly so I don’t spend too much. After the card anniversary I think I will probably go back to using the Starling account for the majority of spending because the potential savings will outweigh the rewards from the cc again. 

ccdorset

Thank you for your replies and the info. That’s really useful.

It looks like I can get a free trial of Audible, so I’m going to give that a go and start with Dave Ramsey’s book “The Total Money Makeover”.

I thought I’d do a test today and went to Sainsbury’s without my credit cards. Even just doing the weekly shop, knowing that the money would be coming straight out of my bank account made me think more about what I was putting in the trolley and my bill was noticeably lower.

It’s a small start, but I definitely think it’s the way forward. I was considering opening a Monzo account for the spending. I’m currently with Lloyds and Natwest. Hardly use my Natwest account, but Lloyds have started to do instant notifications when I spend on the debit card.

I did see the Halifax switch offer and it looks like with their Reward account you can get £5 back a month if you spend £500 on the debit card, so I guess that is another option as it is equivalent to 1% cash back. I guess the argument is to spend on the AMEX and pay that off with the Halifax debit card to get double cash back, but that goes against what I’m trying to do!

enthusiasticsaver

I definitely think that using a debit card is better if you are the type of person that spends freely on credit cards.  Even when using a credit card for rewards (only on supermarket and fuel spends) I still keep within a budget so am happy to continue with it for now.  

ccdorset

enthusiasticsaver said:

I definitely think that using a debit card is better if you are the type of person that spends freely on credit cards.  Even when using a credit card for rewards (only on supermarket and fuel spends) I still keep within a budget so am happy to continue with it for now.  

I'm definitely that type of person unfortunately! I am lucky enough to have around £600-£700 disposable income left every month after all bills, debt repayments, food shopping, regular saver etc. But sometimes I am finding myself spending way over that in a month, which I know seems crazy. I need to start moving more of that into clearing my unsecured debts and building up my savings more.

Ngozi

What a about using a charge card?
That way you can pre-load each month and say to yourself, this is what I have for non-essential purchases this month and you might be able to get the Halifax £5 a month for loading the card? Not sure about the last bit.

Its alright using the debit card but in your head, when you know you've got £600 disposable income each month, are you likely to still spend more than necessary? Where-as if you if have a sperate card with a set amount each month, it might help control your spending.

floppydisk1

Even better, put more into clearing your  unsecured loans as you mentioned those, add little extra every month to your rainy day pot and spend only what's left. Best way to do that is to do it on or next day after pay day so no money left means no money to spend.

ccdorset

floppydisk1 said:

Even better, put more into clearing your  unsecured loans as you mentioned those, add little extra every month to your rainy day pot and spend only what's left. Best way to do that is to do it on or next day after pay day so no money left means no money to spend.

Thanks for your replies. Yes I like this idea, then at least the money will be out of the account before I can spend it and it will be going towards clearing the debts faster and building up my savings.

The next thing for me to do I guess is to make a budget! In hindsight I'm not sure the Halifax account would be a good choice, as it might entice me to spend more than I need to on the debit card to reach the £500 requirement.

Possibly moving my main banking from Lloyds to my Natwest account would be a better idea and turn that into a Reward account.