Do this BEFORE you cut up your credit cards!

Filed in: Blog

Under: Spend Less

If you're keen to get out of debt, then you've probably thought about cutting up your credit cards. Today we're talking about a really really important thing you MUST do, before you cut up your credit cards.

Using a credit card is a bandaid for poor planning

Before you close this post indignantly, I'm not calling you a poor planner. You might have a budget already – and it might be a good one!

But how often does it match up? To actual reality? How often does what you plan to spend match up with what you actually spend?

Unplanned-for expenses are the biggest cause of credit card use!

So it makes sense that having a budget that includes ALL of your anticipated spending will help you avoid turning to credit as a back up.

But wait a minute – isn't it great to have a credit card precisely for that reason?

I kind of know you're past this – as I know you already want to cut up your credit cards – but keep reading while I cleanly blow that myth out of the water.

Why is credit such a bad thing again?

If you've read this series of posts I may have convinced you that having “dumb debt” is a terrible idea long term.

Dumb debt is debt created spending money on things that lose value – that's pretty much everything excluding housing, and even then, it's debatable.

I'd actually like to go further than that and suggest that even having access to credit – period – is at odds with an abundant financial future.

Easy access to credit might seem like a great thing – why, to cover those unplanned expenses! – but in fact it enables a number of future-adverse behaviours:

  • like you're more likely to spend more than you earn
  • and less likely to spend time properly planning your expenditure
  • you're much more likely to buy shi* you don't need (to impress people you don't even like, but that's a whole other story haha).
  • and less likely to have cash savings as your emergency back up

Because who needs an emergency fund when you have a credit card… right?

Yet all of these things can have a serious impact on your future-self's financial security.

So in my opinion, it's worth taking a critical look at your attitudes towards credit, and making up your own mind whether it plays a part in your future. I mean, don't just cut up your credit cards, pay them off and close them.

The key to creating your true budget

Creating a budget that doesn't factor in your actual spending habits – which is based on actual spending data, is like booking a holiday in the tropics but forgetting that you hate the heat.

It's going to suck and you could have avoided it with some really easy reflection.

If you were to keep doing that, it would be madness right?

Your mistakes are like little gems of knowledge, there for you to learn from.

So, it makes sense to look at your actual spending for the past 3-6 months and get some real insights into where things are going.

Here's the simplest way to how to do it:

  1. Make a budget
  2. Look back at your spending for the past 3 months and compare that to your budget
  3. Learn and adjust.

Sounds too simple doesn't it?

It's just looking at your planned vs. actual spending, learning and adjusting.

But there's this: you don't track because…

What can happen when you use a credit card is you unconsciously spend money, and then feel a bit crap about it so you don't track it.

You're not proud of the behaviour so why would you want to draw attention to it…

Jennifer Aniston saying hmmmm interesting... Do you want to get out of debt? I guess you're thinking about cutting up your credit cards then. Please, DO THIS BEFORE you cut up your credit cards!

It's the same as when you stop tracking your exercise because… you haven't been.

Or you stop counting calories because you KNOW you've gone way over.


It's an unhealthy, vicious cycle.

Creating a budget that is mindful of your actual spending habits is simple – from a practical sense. But it's incredibly complex from a psychological perspective.

The honest truth is, if you want to cut up your credit cards FOR GOOD, then you need to make those unplanned expenses visible.

You need to budget using actual, empirical data.

the definition of empirial. Do you want to get out of debt? I guess you're thinking about cutting up your credit cards then. Please, DO THIS BEFORE you cut up your credit cards!

So that's the first obstacle.

What?? There are more??

Yeah, there probably will be.

The two most likely forms of resistance you’ll likely encounter

For some of you, creating a budget will be easy – you’ve just never bothered (or needed to bother) tracking your money before. But others among you may have tried and failed in the past, and here are the likely reasons why:

Most likely reasons for not tracking your spending - reason number one - your spouse. The Leveraged Mama. Do you want to get out of debt? I guess you're thinking about cutting up your credit cards then. Please, DO THIS BEFORE you cut up your credit cards!

Reason number one: your spouse

Money is often at the root of much relationship conflict, your relationship with your spouse might be tested if you embark on a reveal all of your spending.

THEY might not be comfortable with total visibility of where the money is going, especially if they have some interesting money behaviours going on themselves.

So it could be that you hit wall of resistance there.

All I can say is start talking about it. I can tell you that it might take a while, so you should start now.

If you really want to cut up your credit cards, then you need to know where ALL of the unplanned expenses are coming from.

Most likely reasons for not tracking your spending - reason number one - you! The Leveraged Mama. Do you want to get out of debt? I guess you're thinking about cutting up your credit cards then. Please, DO THIS BEFORE you cut up your credit cards!
Most likely reasons for not tracking your spending – reason number one – you! The Leveraged Mama.

Reason number two: you!

For others, money and spreadsheets and statements might do your head in so you'll do anything to avoid them.

Remember why you procrastinate… it’s because you know something is going to be difficult and uncomfortable, so naturally you come up with reasons to avoid doing it.

Lean into it.

There is no gain without pain!

Once you get past these ‘obstacles’ you can start to really get things humming. You'll feel 100% more confident about being able to cut up your credit cards once you know the true landscape of your spending.

How to plan for all of your expenses

The budget I’ve created to get myself off credit, leaves no stone unturned, and allows me to make all my expenses visible.

Having total visibility is the ONLY way you can plan properly and avoid needing to use your credit card.

With total visibility of your outgoings, you can then more confidently plan ahead – so that you avoid needing to use credit as a back up.

In a huge nutshell, you need to list all of your expenses and plan ahead for them.

1) Create your buckets

Set aside money ahead of time for upcoming expenses – create separate accounts (or buckets) for each category, and ensure there is enough in these buckets for upcoming expenses.

I do this at a minimum 12 months out, up to about 3 years (for forecasting debt pay off and savings capacity).

My buckets are:

  • Savings
  • Emergency fund
  • Utilities & insurance (internet, phone, electricity)
  • Insurance (health, life, vehicle, contents, pet)
  • Groceries
  • Rent
  • Childcare
  • Subscriptions (gardener, Dropbox, Zoo pass)
  • Car (warrant, registration, maintenance)
  • Gas
  • Gifts (Christmas, birthdays)
  • Wife care (hair, beautician, hair colour)
  • Business (Canva, ConvertKit, courses & programmes, website hosting & themes)
  • Spending (hubby, me)
  • Clothes, shoes, toys for my daughter
  • Household (ad hoc purchases for the house)
  • Entertainment

I use PocketSmith* to examine my spending (sign up for the Premium account so that you can import your live bank feeds – from both yours and your partner's accounts).

One of the biggest and most immediate benefits I found after categorising my transactions in PocketSmith, is that because it groups your spending from all your accounts, you can the the total household spend for all categories – so for example, I allocate a certain amount for groceries each month, but I saw quite quickly that we were spending WAY more because of a bunch of small, repeat purchases outside of the main grocery shop, by both my husband and I. We didn't really notice but it DOES add up!

2) Put a regular amount into your buckets

Because I’m paid monthly, I put fixed amounts into each of these buckets so that it’s easier to manage.

So for rent, we pay fortnightly but put money into the rent bucket monthly, so that there’s always enough in the account to cover the upcoming payments.

You do have to be careful when paying your expenses on a different cadence to when your salary comes in – just to make sure there is enough in there you may need to put more in initially.

For example:

Your rent is $500 a week.
You are paid monthly.
Your rent is paid every two weeks.

$500 multiplied by 52 weeks equals $26,000
$26,000 divided by 12 months equals $2,166.66
So you would put $2166.66 every month into your rent account.

But let’s say you are paid on the 1st of each month, so you put money in your rent bucket on the 1st, then you pay your rent fortnightly on a Friday.

Most months there will be 2 rent payments coming out, leaving a little left over in the rent account – this will build up until inevitably there are THREE Friday’s within a month, so effectively you make three rent payments.

You don’t want to get caught out by only having 2 payments worth in there each month, and there is no money left!

For fortnightly payments this happens a couple of times a year, so it’s worth paying attention to.

An easier example might be subscriptions.

Let's say you have 4 subscriptions paid at different times:

Netflix $10 monthly ($120/year)
Spotify $10 monthly ($120/year)
Some type of annual membership fee $100 every June ($100/year)
Gym membership $50 every 2nd Friday ($1200/year)… ouch.

So you work out that annually, that all adds up to $1540

$1540 divided by 12 is roughly $129, so that's how much you need to put into the subscriptions bucket a month.

Of course, if that $100 annual membership is due for payment in the first few months of creating and paying into that bucket, you may need to put a little more in initially (front load it).

But the point is, you are planning these expenses ahead of time, so you're not going to be surprised by them, and end up with no cash, so you are inevitably ‘forced' to use your credit card.

3) Track your spending and learn from it

It can be really annoying and demotivating when you’re constantly spending more than you have budgeted. Naturally that’s when a credit card, store card or lay buy can seem really appealing. But you can get into the habit of masking the real problem and increasing your debt level over time.

By looking at your past spending – like, your actual spending, you can get a better understanding of your spending habits, and make a more conscious decision about how much you would like to budget for something.

So again, I wholly recommend tracking your spending – you can immediately import your past 3-6 months of transactions into an app like Pocketsmith and get some insights fairly quickly into where your money is going.

Awareness helps with consciousness.

Then the trick is to look at what you budgeted for, verses what you actually spent.

Pocketsmith has this awesome feature – the Auto-budget tool – which creates suggested budgets based on your actual spending. So, once you've imported the last 3 months of transactions and categorised them, you run the Auto budget tool and it will tell you what it thinks is a good budget for each category.

Warning, you might be horrified by some of the suggestions (this is how I found out our actual grocery spend), but a little bit of horrification is going to be good for you okay? Trust me.

Are you ready to cut up your credit cards now?

So at this point, you have a budget that takes into account your actual spending habits and history.

You've mapped out all of your planned expenditure for the next few months…

The next question, which could be really uncomfortable is…

Can you afford your lifestyle?

This, dear mamas is another post. I think you have more than enough to think about for now!

Are you feeling fired up to get all budget-nerd on it and do a bit of spending analysis?

Let me know if you have any a-ha moments, in the comments!

As always, I love to hear your comments and get your feedback.

Til next time.

The Leveraged Mama

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  • Great article Peti thanks! I have discovered PocketSmith and love it! I have a question for you about that. When you have multiple accounts for your buckets and you inevitably end up moving the money around as designed, how do you deal with the transfer transactions in PocketSmith? I’ve been marking them as ‘transfers’ and then categorising them but I think I’ve stuffed them up somehow and it’s skewing the bigger picture 🤔

  • With PocketSmith, do you have an account set up for every bucket? I’m just navigating it all now! We still live off the credit card and pay it off every fortnight, but I am noticing we are living outside our means and so that needs to stop. Getting there slowly!

    • Hey Hannah, yes I have separate accounts for each ‘category’ and this feeds through to PocketSmith. I find that this helps me save ahead, so I always have enough for each expense every month. For example with utilities, I know that in winter I’ll spend more money on electricity, so I’ll put a little extra in the utilities account every month to cover it. So at the end of each month there’s likely to be some ‘leftover’ cash which will be used down the track. Because I put the money into separate accounts, it’s not accessible from my spending account so i don’t think about it! Hope that helps 🙂 Yay you for getting started! The start of the journey is the hardest, trust me!

  • Hi Peti

    Great article!
    I thought I might share our method for a different spin. For those who can operate a budget, it works well.

    I have a budget that I worked out all our expenses from. Then, from that, I work out how much money we can spend per month on fuel, food, eating out, and fun stuff. The total of that is the limit to our credit card.
    Hubby gets paid monthly so I know that I can max the credit card out every month and (as long as we don’t go dipping into the other account) it won’t affect our ability to pay any bills.
    It works for us because that extra money sits (or did until we sold our house) in our interest account saving us money on interest. And, it also earns us airpoints which can feed our travel bug.
    It also means, that instead of putting $250 aside for the power bill into another bucket, it means that if our power bill comes in under, instead of spending the extra money, it builds up because we are not doing any spending out of our bank account directly. So, in theory, it equates to faster savings.

    So, I just wanted to put another perspective out there that it’s possible to operate a credit card without getting into further debt for sure, and there are lots of benefits to doing that.

    Have a great day,

    • Hey Kat, thanks for your thoughtful comment! Yes I totally agree, credit cards can be used to your advantage also. In the FIRE community (financial independence, retire early) many use credit cards for the travel rewards. But most of these people are very wise with money like yourself, and don’t succumb to interest payments and overspending.

      I see that credit cards have a place when your money management is in a good place.

      Sadly for many this isn’t the case and once you’re on the OTHER side – the bad side of credit cards – it can be dangerous territory 😬

      So I recommend to anyone trying to get out of debt, to cut them up until your financial situation (and money behaviours) improve greatly!


  • showing how you allocate the funds was really useful thanks – love your blog, and am following the goal to implementing your tips myself. It’s a slow road, Rome wasn’t built in a day but slow and steady!

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