In a previous post, I spoke about how we paid off our $35,000 car in one year’s time. In there, I also spoke a little about how we used credit card points to our advantage.
I want to preface this by saying that we love to use credit cards for their points. Nearly everything we can buy, goes to our cards. However, and this is a BIG however, we only charge what we can pay off the following month. This is just something we have always lived by.
Credit card debt is something that many people struggle with. This is no secret. And, if you are someone that feels you currently struggle with this. Or you simply don’t trust yourself using credit cards. I have a few tips to help you curb your spending.
Reasons Why to Control Credit Card Spending
There are a few reasons why everyone should want to keep their credit card spending under control. Some of the reasons, I can think of off the top of my head include:
- Maintaining a good debt-to-credit ratio (credit utilization ratio)
- Not overpaying for items, in the form of interest payments
- Not getting in over your head in debt
While the last two are pretty self-explanatory, I want to touch on the debt-to-credit ratio for just a minute. Because, this is essential, especially for maintaining a good credit score.
Your debt-to-credit ratio or credit utilization ratio is the percentage of credit you are using against how much is available to you. Let’s say you have one credit card with a $5,000 credit limit and have used $3,000. Your utilization ratio for this particular card would be 60% (3,000 / 5000).
So, now let’s take a look to see if this is a good ratio rate.
Smart Asset mentions in this article that “FICO® suggests that a good debt-to-credit ratio percentage is below 30%. And that goes for your ratio on any one of your cards separately as well as for your overall ratio.”
Given this statement, the above scenario of a 60% utilization would not be ideal. In fact, it is double the recommended debt-to-credit ratio. Therefore, this could potentially hurt one’s credit score.
I bring this point up as, oftentimes, people have this belief that just by paying their monthly payments, that all is well with their credit score. That they’re doing everything right. However, as you can see, other things (such as a credit utilization ratio) come into play.
If you are someone that plans on taking a loan out for a car, home, school, etc., taking care of your credit score is incredibly important.
Now, that we spoke a little on the reasons why to control credit card spending. Let’s look into how credit card spending can be controlled.
How to Manage Credit Card Expenditures
Okay, so what I am about to share isn’t a magic bullet or rocket science. It is simply what helped me and kept me from overspending, in my college days. Which, then carried over to me into independent adulthood.
Here are a few things to help curb credit card spending:
1. Set Credit Card Budgets
One of the first things I did with my very first credit card was treat it as if it was a bank account. I would determine my anticipated monthly income (always shot low). Then, I would calculate out the few fixed/variable monthly expenses I had. Then from there, I would determine how much I wanted to put into savings.
After I had all my numbers, I took my monthly income minus my expenses and savings contribution. Then, determined a credit card budget for the month. Now, one mistake I made was not paying attention to the credit utilization ratio. So, you’ll want to be sure to take that into account too!
Also, keep in mind that credit cards oftentimes run on different monthly schedules. So they don’t always run from the first of the month to the last day of the month. The charges may be calculated from say, January 15 thru February 15. Therefore, adding a dynamic to the mix, that needs to be considered.
Tracking the Credit Card Expenses
Once the budget was set, I’d use an “old school” check register to hold me accountable. Whatever my budget was for that month would be put in the starting balance. Then, every time I swiped my card, I’d subtract it from my total “allowed” for that month.
I did not add in any deposits (unless I processed a return on my credit card). As, remember, this was the budget I set for the entire month’s worth of credit card charges. I’m not adding money to it as that defeats the purpose of setting a budget.
Below is an example of the type of check register I would use. If you do not have one, you can pick this exact one up from my shop.
It’s a simple idea, but it really helped to hold me accountable so that I didn’t overspend for the month.
2. Check in on Credit Card
It’s a good idea to check in on your credit card charges every few days or at least once a week. What makes using credit cards dangerous is the ability to swipe and forget. And this is especially true if you are not tracking your expenses.
If you are checking in on your credit card balances throughout the month, it keeps it on your mind.
I’ll be the first to admit I’m not perfect. Not even close. There have been months where I mindlessly spent money. Only to then get the eyebrow raising statement, in the mail, the following month.
What we are trying to avoid are these surprising statements. So, check in on those charges throughout the month. Plus, it’s also a great way to catch any fraudulent charges early on!
3. Set Up Alerts
Most credit cards have the ability to set up a number of alerts. These alerts will notify you once a certain criteria has been met.
For example, you may be able to set up your card to text or email you once it has reached a $1,000, $2,000, etc. limit. Or you can have them notify you any time a charge is processed on the card. And then from there, notify you of upcoming payments that are due.
These notifications can really help you stay on track, control credit card spending and ensure that you don’t miss a payment.
I rely heavily on alerts for one of my lesser used cards. I’m notified every time a charge is placed and then get at least two notifications once a payment is coming due. Having these in place have saved me a few times!
Final Thoughts
I know that these tips are simple in nature, but that also means that they should be easy to implement, as well.
It’s also really going to come down to self control. To having the patience to save for something instead of grabbing it just because a card has available credit on it.
If you find yourself struggling to save. Or you simply want to track and keep your finances in order, I have a 17 page finance planner printable over in the shop that may be able to help ?
