Making purchases with a tap or click has made life easier for harried parents—but it can be a slippery slope and lead to overspending. Here's how to keep better track of your virtual dollars.

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Digital payments are more popular than ever—especially among parents who have little time to do, well, anything, let alone go to an ATM. A 2021 analysis by on payment methods reports that digital wallet usage increased last year to make up almost 30 percent of all e-commerce transactions. While it's certainly convenient (and more sanitary, given the pandemic) to pay with a tap of your phone, there are downsides in terms of your family's finances.

An image of a woman online shopping.
Credit: Getty Images. Art: Jillian Sellers.

"When you use cash or checks, you know the money is finite," Mike Peterson, cofounder of the American Credit Foundation and author of Reality Millionaire: Proven Tips to Retire Rich, tells Parents. "Electronic payments take away that tangible feeling of spending, so it's harder to keep a lid on expenses," he adds.

This out-of-sight, out-of-mind mentality isn't lost on credit card companies and banks, which are experts at raising rates or sneaking in fees and extra charges when you're not looking. But while rising costs are eating up more of your hard-earned dollars, you can get a tighter grip on spending—whether it's plastic, online, or both.

Avoid monthly-statement shock.

View your credit card charges online weekly or biweekly to keep better track of your balance, which will give you the opportunity to pull back if you're spending too much.

"Review your credit card and banking statements each month—you may have forgotten about things hitting your bottom line, and that can add up," Colleen McCreary, chief people officer and financial advocate at Credit Karma, tells Parents. "Consider cutting unessential costs, such as autopay subscriptions, and monitor your essential spending—like grocery, daycare and utility bills—on a more frequent basis so you can stick to your budget," she adds.

McCreary suggests a 50/30/20 budget—50 percent of expenses toward needs, 30 percent for wants, and 20 percent for savings or debt. Setting a family budget that you can stick to is important for keeping your spending down, and avoiding monthly-statement shock.

Be an early bird.

When paying your credit card balance online, send the money at least two business days before it's due. Banks have their own schedules for downloading payments, and if they receive them even a few seconds late, they shift the transaction to the next business day.

"There could be a lag between when the bank receives your e-mail and when that information is passed along to the credit card company," says Peterson. Either way, your payment could be tardy even if you hit the "submit" button on time, and you could be charged a $25 to $35 late fee, plus interest on the unpaid balance. "Building in a 48-hour buffer ensures your money will arrive on time," he says. Particularly crucial for those daycare payments.

Read the fine print.

Open all mail from creditors, including utilities and insurance companies, and anyone else you've authorized to make automatic deductions from your bank account. Don't dismiss it as junk mail—it could be a late or missing payment notice, which could ding your credit score or cost you money in late fees if ignored. Call customer service right away to clear up any confusion, and a rep will likely update your account and waive the fee immediately.

Fill in the blanks.

When sending e-checks, don't use the feature that automatically fills in the amount of your last remittance. If that figure is lower than your current balance and you forget to change it, you could get stuck with a penalty. This is especially true with large deductions that tap your account once or twice a year, such as home insurance. Always review online checks before sending, then go back a few days later to make sure the payments went through.

"If not, call your creditors immediately," says Peterson. "Most are willing to make a one-time adjustment for an understandable mistake."

Manage by merging.

Free online services such as Mint link your credit card and bank accounts and give you an updated balance and spending report daily. IExpenseOnline also tracks your spending in budget categories such as food, education, family entertainment, utilities, and transportation—but you have to input your purchases into the program. For about a $100 annual fee, Mvelopes not only merges your accounts but also makes deductions from the appropriate budget column each time you make a purchase.

Know when to hold...

Resist the temptation to open store accounts so you can save 10 or 15 percent on purchases that day. You will you spend more to take advantage of the deal, and you'll trigger an inquiry into your credit history. Though standard procedure, any inquiry can cause doubts about your creditworthiness among other lenders, all of whom have access to your credit. As a result, opening a new card can drag down your credit rating and raise rates by two to three percent for more important debt, such as a future mortgage or car loan.

If you must open a new card, scan the agreement for the words "universal default," which mean that any problem with one card, such as a late payment or error, is reported to all your creditors and can trigger across-the-board interest-rate hikes that could cost you hundreds of dollars a year. Call the company and ask to have the default provision taken off your account. If it refuses, find another that will honor your request.

...and when to fold.

Don't close cards you already have, unless you're being charged an annual fee. This can also hurt your credit rating by lowering the grand total of spending limits allowed on all your cards, making you look like a worse risk.

Cash is your friend.

These days, more people are flexing plastic to make payments of as little as $2 for things like coffee, newspapers, and parking fees. But all those mini-charges on your credit or debit cards quickly add up. Peterson recommends budgeting a certain amount of pocket cash per month and committing to spending only what you carry for small purchases. That will also help you curb impulse buys and save anywhere from $200 to $300 a month.

How much should you allow yourself? Peterson suggests keeping a "spending journal" for a week in which you track the cost of all incidentals, then reviewing it to see what to cut. Budget wisely, but don't let it rule your life.

"Budgeting is like dieting—the stricter the diet, the harder it is to adhere to, and you might wind up gorging yourself on junk food in a fit of weakness," he says. "Allow for some give so you feel that you have breathing room."

Don't carry cash that often? Using your debit card more can have a similar effect. "Sometimes paying with a debit card can make you think twice about a purchase—especially if you're a serial over-spender," says McCreary. "It feels more immediate, and therefore you may spend with more intent."

Why do we buy less when using cash? Your brain says "ouch" when you fork over a few bills and see your thinner wallet; the insular cortex, a region that registers negative emotions, becomes more active then, compared to when you use a credit card.

Originally published in the March 2009 issue of Family Circle magazine.

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