Making More Money? Be Careful Not to Rack Up More Debt

It’s easy to overspend on a credit card when the money starts to roll in.

By: Deb Hipp

For the last two years, I’ve scraped by on a tight budget. First, I had to save enough money to work full-time as a freelance writer. Then I had to be even more frugal while I built up my clientele and income.

After a while, cooking most meals at home was second nature. So was rarely buying new clothes or going out to a movie. Then, suddenly, I started making a lot more money.

For two or three months, I made more than enough to live on. Then, last month, I made twice the income I’d been earning. I could have paid that money toward my student loan balance or squirreled it away in savings. Instead, I was like a person who deprives herself on a diet and later binges on pizza, chocolate, and wine.

I loosened the meticulous control I’d had on my spending for two years, and within two weeks, I had more than $2,000 in credit card debt. So, how did that happen? It was easy.

How earning more money can add to your debt

The first thing I did was go out to eat more often. Before, I made breakfast at home, marveling at how little it cost, maybe $2, for eggs, potatoes, and a bagel. Now I found myself paying $15 for the same Saturday breakfast at a restaurant with a friend.

I started ordering the enchilada platter at my favorite Mexican restaurant, spending another $15 instead of the $8 it cost when I ordered enchiladas á la carte and filled up on chips and salsa. I even got takeout Chinese and splurged on barbecue. The good thing is, I was still using money from my cash envelope system. Then something dangerous happened.

I took out my credit card and went shopping. At first, I bought things I needed. Two pairs of discounted running shoes for $190. Then $85 on a bunch of deeply discounted clothes for an upcoming beach vacation. After all, I’d saved $1,000 from my dog-sitting side hustle to pay for the trip.

I’d already deposited that money in my checking account, planning to use my rewards card for the hotel, rental car, and meals. Then I’d just pay the balance off when I got back home. That was the plan, anyway.

Since I’d been using my cash envelope system for so long, I’d forgotten how painless it is to spend with a credit card. On my vacation, I brought cash, but I still used the credit card for most purchases.

The psychology behind using a credit card

So what if the meals from my favorite Asian fusion place were around $18 each? I didn’t care. I also didn’t mind spending $13 on organic grapes and a loaf of bread from the market near my hotel. And, of course, I had to get a massage. How could I not? I was on vacation. I splurged.

Plastic made it easier to be generous to others too. I bought my brother, Steve, a pricey coffee mug, and then I bought a bag of roasted coffee to mail to a friend. While I was at it, I bought Steve a $40 shirt I knew he’d love. I spent around $30 or $40 at convenience stores on bottled water, snacks, and other stuff.

By the time I got back home and checked my credit card balance, it was $2,100, about $1,400 more than my usual monthly balance that mainly includes utility payments and a health insurance premium. By not paying attention while using my credit card, I’d racked up $500 more than planned.

The good news is that I had that $1,000 saved to knock down the balance right away. I also have more money coming in this month, so I can pay off the balance by the due date to avoid paying interest. However, I learned a valuable lesson.

Sticking to a budget, paying cash for everyday expenses and keeping close track of my credit card balance are the habits that kept me out of debt for the last two years.

Next week, it’s back to portioning out daily cash amounts in envelopes, cooking more meals at home and padding my emergency savings. Just because I’ve got more money doesn’t mean I have to spend it all.