By Jason Larkins
Owning credit cards is a good way to build a credit history and enjoy convenient payment options. However, this convenience comes with some risks. It’s often tempting to whip out these cards on a whim when something strikes our fancy — especially when it’s something we can’t afford if we had to pay for it in CASH.
Therefore, to ensure you don’t approach your own “fiscal cliff”, it’s important to control how and why you spend. Here are 7 key ways to control your credit card spending:
Set a Spending Limit
This means budgeting for all household, vehicle, and other expenses. After you’ve established a budget, you may determine you have $200 of disposable income left after all expenses are covered. Therefore, that’s your limit for the month; stick to it and refrain from charging anymore than that on your credit or debit cards.
Switch to Cash for Awhile
While credit cards can help you build up a credit rating – don’t be beholden to them. Take a break from building up the amount you owe on them by paying cash when you can. Have a cash reserve that suits your budget each month and use that for some expenses such as eating out or groceries. This prevents that credit card balance from rising and socking you with more interest payments in the event you can’t pay the bill in full at the end of the month.
Pay off Your Balance Each Month
Make a commitment, early on, to pay your credit card balance off each month. Just think, paying interest each month means you’re paying more for every purchase you previously made. That pair of shoes you bought on special just got pricier because you paid interest on your original purchase. Therefore, have you really saved?
With that in mind, only charge to your credit cards what you have available to pay cash for. I personally believe it’s fine to use credit, but only when doing so wisely (which means
Do a Double Take Before You Buy
In other words – stop – look at what you’re about to purchase – then ask some questions. The first question is, “Do I really need this item or service?” If the answer’s “No”, put that credit card away. If the answer’s “Yes”, you’re next question is, “Do I really need this product or service now?” If you don’t, put that credit card away.
Many financial gurus will suggest that instead of making a spontaneous purchase, consider waiting 48 hours and rethink the decision after you’ve had time to ponder. Others have even suggested waiting a full 30 days as that gives you plenty of time to determine if you really NEED the item in question.
Plan Your Shopping List
Have a plan when it comes to a shopping expedition. Don’t enter a mall or wherever without knowing exactly what you need to buy. Make a list of items you need to purchase. This helps you avoid impulse buys, which drive credit card balances upward.
Make a list of shops that carry what you’re looking for and even limit your excursion to these retailers. Window-shopping does have its place – when you’ve paid down your debt and have a “window of opportunity” in disposable income for extra purchases.
Consider Transferring Your Card Balance
If you’re trapped with some high-interest credit cards, then consider transferring that balance to a card with a lower rate (or if you have great credit, there are some available with 0% for 12 or 18 months). While there may be a transfer fee (often 3%), lowering your interest rate leaves you with extra money to pay down your principal.
Consider Reward Programs
Once you’ve finally gained control of your finances and your credit card spending, consider cards that offer premier rewards. Look for the best credit card rewards from reputable banks, credit unions, financial services companies, airlines, and more. Accumulate points that provide you with discounts, free air travel, rooms, and free merchandise. This is another way to control expenses and have money for paying down the principal on your credit card.
Always keep in mind your overall financial goals when it comes to purchasing products and services. Don’t be derailed by tempting offers you may not really need. Once you learn to control spending you’ll find some freedom as credit card debt will no longer control you.