How to Transition from Credit Card to Cash (Step-by-Step)

How to transition from credit cards to cash? The cash-only life, plus all its benefits, can be yours by following these steps.

Are you hoping to switch to a cash-only lifestyle? Then you’re likely scratching your head about exactly how to transition from credit card to cash envelopes.

Woman happily working on cash only budget at desk in jean top

There are so many benefits of using cash only, like being in complete control of your spending, not still paying for last month’s bills, and spending less (yep – it’s harder to hand over cash than it is to swipe plastic).

But where’s the cash to pay this month’s bills supposed to come from?

Especially since most of your money earned each month is going towards paying last month’s bills (maybe even last year’s bills).

You need some solid strategies. Because every dollar you can pay in cash this month instead of put on your credit card will be one less dollar you’ll need to pay off next month.

And eventually?

You’ll be paying for everything in cash and your credit card can sit in your junk drawer.

Let’s dive in.

How to Transition from Credit Card to Cash

When you want to transition to a cash-only life, the problem is this: how do you cover this month’s bills and costs in cash…even though you’re still paying for previous months’ costs that were charged to a credit card?

That’s why this is called a transition – it’s not going to happen overnight. In fact, it’ll likely take a few months before you can be fully cash-funded.

Maybe this month you’ll be able to pay for two bills in cash and put the rest on your card while paying down your overall credit card. Then next month, you can continue paying those two bills in cash (or automatically withdraw from your checking account) and can add all your grocery spending to it.

Eventually, you’ll be able to fund everything in cash and automatic payments directly from checking, making the transition complete.

The transition from credit card to cash spending looks something like this:

Get clear on your total spending obligations for this month (including the current month’s bills, spending, and any minimum payments due)
Get clear on how much money you have, in cash, to use this month
Find your “Credit-to-Cash Gap”
Fill out a monthly money calendar with bill deadlines, income coming in, and spending needs
Change automatic credit card payments to automatic debit payments/checking account withdrawals
Pay down your credit card(s) as much as possible
Rinse and repeat for next month

Now, let’s dive into each of these steps in more detail.

Step #1: Make a List of Total Spending Obligations for the Month

Before you can figure out what you need to pay by card and what you can pay in cash this month – to tip the balance towards a cash lifestyle – you need to know how much you’ll be spending this month.

And not just spending. But spending on needs only (okay…maybe a few wants).

That’s because you need as much cash at your disposal as possible to be able to:

Pay for as many bills/spending needs as cash this month as possible
Pay down your credit card bills from previous months’ living expenses

This is how you get ahead – how you eventually make the transition from a credit card lifestyle to a cash-only lifestyle.

Pro Tip: Since you’ll be on a tight, needs-only spending, cash budget this month, you’ll want to check out these cute printable monthly budgets, plus one of these free printable cash envelopes. It’ll keep things organized by categories of spending and put you in control.

Step #2: Make a List of Money Coming in this Month

Living a cash-only life means lining up money coming in, when money needs to go out.

When are you getting paid this month? When is your spouse/partner getting paid? What other income resources do you have coming in that you can count on to use for bill payments and expenses?

Step #3: Find your “Credit-to-Cash Gap” (+ Minimize It)

You’ll need to know what the gap is between you being able to use cash to pay for everything this month, and you having to charge everything to a credit card.

Subtract your income coming in this month, from your monthly obligations going out (bills + spending).

What’s your Credit-to-Cash gap?

This number can be a positive number or a negative one.

Positive Number: If you have more than you need to pay all your monthly obligations in cash, then you’ll put the extra amount towards paying down your credit card from last month’s expenses (to eventually pay it off altogether and stop using it).
Negative Number: If you have less than you need to pay for all of your monthly obligations + last month’s credit card bill, then it just means you’re still in the transition period. Keep reading to pay as much of your current monthly obligations in cash as possible, and charge as little as you can get away with so that eventually, your number turns positive.

For example, if your monthly obligations this month plus credit bill from previous months adds up to $5,125, and your monthly take-home pay will be $6,000, then you have an extra +$875 you can use to pay down your credit card statement. Each month, you’ll continue to pay for everything in cash and send the extra to the credit card company until you pay off your credit card statement completely.

But if your monthly obligations + credit card bill from last month’s living expenses add up to $7,000, and you’ll only have $6,000 in income this month, then you have a -$1,000 gap. You’ll need to pay as much of your bills this month as you can in cash (to keep that credit card payment from growing any bigger), but charge the rest so that you cover all your monthly obligations.

Don’t worry if your gap between being able to pay everything in cash and having to charge everything seems huge. You’ll be working on getting this number down each month moving forward until eventually it’s $0 (and your credit card can collect dust in your top desk drawer).

Also, use these strategies to close that gap as quickly as possible:

Step #4: Fill out a Monthly Money Calendar

Your money coming in and money going out have got to line up now – no longer can you charge bills and spending to a credit card when the money’s not there to back it up.

This means you’ll need to organize this month (and the months in the future) around bill due dates, spending needs, and when you have money coming in.

Get a blank monthly calendar, and fill it out with:

The month, and dates
Bill due dates
Spending needs (such as when you’ll go grocery shopping, when you’ll get gas, birthday party gifts, etc.)

Now, put a green dot next to the bills/spending that you’ll be doing in cash, and a red dot next to the ones you’ll be charging to your credit card (or use whichever colors catch your eye!).

You can also use one of these free printable bill-pay checklists, and one of these bill-paying station ideas to organize everything.

Pro Tip: do you have bills due that, if their due date was just a few days later, you could pay them with a check or automatic debit? Go ahead and call your service provider and ask if they can change your bill due date to line up with when you get paid.

Step #5: Change Automatic Payments

Be sure to change your automatic bill pay settings for any bills you’ll be paying by debit card, manually with a check, or by automatic checking withdrawal.

Step #6: Pay Down your Credit Card(s) as Much as Possible

With any money left over throughout the month or at the end of the month, send it to your credit card company.

The goal is to completely pay off your credit cards, and then not use them again in your new, cash-only lifestyle.

Hint: got a lot of debt? Here’s how to pay off $40,000 in debt in one year. It’ll help you no matter what your debt amount is. You’ll also want to use one of these printable debt free trackers.

Step #7: Rinse and Repeat for Next Month

Next month, do the same set of steps.

Your goals are always to:

Find ways to pay in cash more than you were able to the month before
Charge less of your monthly obligations than you had to last month
Pay down your credit card bill until it is $0

Accomplishing all three of these things means you’ve changed to a cash-only lifestyle.

Benefits of a Cash-Only Life

There are three main benefits to a cash-only life:

being in complete control of your spending
not owing money from last month’s (or last year’s) bills
spending less

And I’d really like to talk about our own experience with the third one: spending less.

You see, I used to be one of those people who paid everything by credit card to score the reward points and then paid off our credit card each month.

But that all changed when my husband was laid off on Halloween in 2013.

Suddenly we were thinking about how to manage your money when a good bit of it stops coming in (here’s more of our story + tips on how to survive unemployment).

Even though we had a fully stocked emergency fund (here are emergency fund example amounts), we knew we had to keep a close eye on our money − everyone needs to when looking at how to manage your money after a layoff.

Spending needed to be tightened up just in case we were in this for the long haul.

I decided we should give a full-cash budget a try for one of our main money management strategies (my husband, who admittedly was not as disciplined in his credit card spending as me, was game).

I can confidently say − after a year on cash-only personal spending budgets (that means for things like haircuts, eating out, coffee, clothes, etc.) − that you can control your money much better when you physically hand it over to someone.

And honestly, I never thought I would be making that claim.

I thought for sure that I was on top of my spending with my credit cards. I loved how all of my spending could then be tracked and categorized automatically by a free program like PersonalCapital.com, and I loved how I was earning free gifts through credit card reward points to boot.

But when I'm wrong, I admit it. And I was wrong!

Here's why I think this is the case:

Reason #1: Because if you take a certain amount of money out of the ATM each week to drip-feed your monthly personal spending money (a cure for end-of-the-month droughts), then you would have to hop into a car and go back to an ATM to get more money out if you overspend in any given week. That alone is enough to stop and make you think about it.
Reason #2: It's harder to part with the green stuff than it is to swipe a card through a machine. I love the green stuff! I love having the green stuff in my wallet! My relationship to plastic is not nearly so strong, and no matter how many times or for how much I swipe plastic for it doesn't dwindle down. It still ends up back in my wallet.

So, where do you go from here? After you figure out how to transition from credit card to cash, I’ve got a new challenge for you.

I know this sounds crazy…but eventually, you can use the same steps as above to get one month ahead on your bills. How great will that feel? To not only be caught up with your living expenses and have paid off previous months' charged living expenses, but to have an extra month’s worth of money sitting in your checking account? From experience, I can tell you that it feels amazing. And you can totally get there yourself. It just takes some solid strategy, and time!

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Amanda L Grossman

Personal Finance Writer and CEO at Frugal Confessions, LLC

Amanda L. Grossman is a writer and Certified Financial Education Instructor, Plutus Foundation Grant Recipient, and founder of Frugal Confessions. Over the last 13 years, her money work has helped people with how to save money and how to manage money. She's been featured in the Wall Street Journal, Kiplinger, Washington Post, U.S. News & World Report, Business Insider, LifeHacker, Real Simple Magazine, Woman's World, Woman's Day, ABC 13 Houston, Keybank, and more. Read more here or on LinkedIn.