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This is a guest post by Jonathan from Master Your Card, a blog that helps us figure out whether the card is our best buddy or a plastic parasite out to bleed our wallet dry.

That’s a question that many economists, especially with the looming recession, have been asking themselves since July of last year. When the housing market took a turn for the worse, people changed their spending priorities. Before the market downturn consumers would pay their mortgages first and let their credit cards default. Now they’re paying their credit cards first and letting their mortgages default.

Why the change?
With prices everywhere going up - including dairy, gas, and healthcare - American consumer’s are certainly feeling the pinch. To compound the issue even more, many are worrying over job security and the fact that their homes are no longer worth what they used to be. In fact, many consumers owe more than their home is worth. It’s a scary situation, but a reality for many. In their minds, the only means of survival is to live off of their credit cards for their monthly needs.

What can be done?
First and foremost, there has to be an understanding between wants versus needs. Too often people confuse the two and then their spending tends to get out of control. “Oh, I just need to have that new (insert whatever trinket suits your fancy)!” Well, no you don’t. That’s a want. Your needs are going to fall under things like food, shelter, transportation to work, etc.

I like lists myself. They make me stop and think about things and really focus on the necessities. I highly encourage my clients to do the same, so what we do is take their last credit card statement and go through each purchase to determine if it was a want or a need. If you’d like to try this at home, get a blank piece of paper and divide it into two - wants and needs. Go through each purchase on your statement, line by line, and categorize them.

Many of my clients use their credit cards to eat out A LOT! And one thing I noticed is that those were always categorized under needs. When I asked about them the response I always got was “Well, I gotta eat!” Yes, you do. However, eating out every night is not a necessity, it’s a want. Do you really NEED to spend an average of $12-25 dollars to eat out (including tip for sit-down restaurants) when you can spend an average of $5-7 to cook meals at home? The answer is no. The reality is that you have given yourself the false impression that you just don’t have time to cook, but you still need to eat.

My dad, who travels a lot and is just cheap anyway - sorry dad! - likes to buy those whole rotisserie chicken’s, a bag of frozen vegetables, and chicken flavored ramen noodles to make a very inexpensive, yet hearty meal. Cook the ramen noodles with the frozen vegetables and then add the chicken. Add some bread and butter and there you go. Quick ideas like this can help keep you from using your credit card to eat out AND they’re a lot healthier for you, too!

Now that you’ve established the difference between wants and needs, keep that list posted somewhere that you will see it. One of the reasons people use credit cards for purchases is because they don’t feel like they’re spending real money. It’s not the same as using cash, check, or a debit card where you actually see the money come out of your checking account. The psychology of spending money on a credit card is in that disconnection you feel with it not being “real money.” So, having your list posted where you can see it every day makes it more real in your mind, thus prodding you to reconsider your purchases later.

Next, leave your credit cards at home! Or better yet, in a safe deposit box. Do you really need to carry them everywhere you go? My clients tell me yes because they need them for emergency purposes. Ok, well if you’re maxing out your card on discretionary items, then what’s left for emergencies? Sometimes I wish I had a camera for the look that question generates! But seriously, if you want to carry one card for emergencies only, fine. But make it a priority that it be used only in the event of an emergency and nothing else. However, you still don’t need to carry around ALL of your credit cards. The average American has 10 credit cards, it’s doubtful that you’ll have an immediate emergency that requires the balance on all 10 of those cards. Keep the majority of them at home. Out of sight, out of mind!

Studies show that impulse buying is attributed to our feelings of self-worth. People with low self-esteem tend to buy things that make them feel better, even if temporarily. To truly master your spending habits, you need to discover if this is you. Remember, money - or the lack thereof - doesn’t define you as a person. It’s the choices you make in life that define you. Without going all fortune cookie-like on you guys, discover your attitudes towards money and pay attention to the feelings that you have when you buy, especially if it’s impromptu. You may discover that this psychological barrier plays a big role in your spending habits.

It’s also important to know what your total debt is. Most Americans walk around blissfully unaware of the total amount of debt that they owe. It helps them sleep at night. Well, the sad truth is that it also helps keep them in debt. Knowledge is motivation in this case, and knowing how much you owe and how long you’ll be paying it back with just minimum payments can really help you see the bigger picture. Think of it this way: that new gadget you just had to have, the one that was $2000 is going to cost you over $7000 by the time you actually pay it off with the credit card company. Why, you ask? Because if you only pay the minimum balance - usually 2% of the outstanding balance on the card - then some of that payment goes to interest and some to principal; however, the majority goes to interest because that’s how credit card companies make their money.

Is there a solution?
The problem isn’t the credit cards; it’s the way they’re used. The solution to overspending is to become more educated and aware of our spending triggers. We are a quick-fix society that doesn’t like to wait for anything - enter credit cards. They allow us the instant gratification of purchasing power and, at the same time, keep us disconnected from the amount of money that we actually spend. But, it doesn’t have to be that way. Consumers can use their credit cards less if they develop specific strategies for spending and debt repayment. If consumers don’t want to have to worry about choosing between their mortgage and their credit cards every month, they need to take absolute control of their finances.