If you rely too much on a credit card to cover a few weeks' worth of expenses or to hold you over until payday, you may be wondering how to control spending on your credit card.
When you use a credit card, you are, in effect, buying something with money you don't yet have. Overusing credit cards can harm your finances because if you spend more than you make, you can easily add to your monthly debt, fall behinds on payments and hurt your credit score, and fail to save money for future goals. This is especially true if the card has a high interest rate, which could over time bury you in debt you cannot easily repay.
While it won't be easy, the best way to break the cycle is to stop using your credit card using money-management approaches that put you in control of your spending.
Create a Budget
The most important step you can take to control spending on credit cards is to set up a budget—a plan for how to use your money every month that takes into account how much you earn and how much you spend. To start, look at your income and analyze your expenses.
When evaluating what you bring in each month, factor in all your income streams, including earnings from a primary job, part-time jobs, self-employment earnings, child support, or government benefits.
Likewise, track your spending habits on paper or in a spreadsheet over a month to determine how you spend your money now; this activity will help you identify and change spending habits that are leading you to buy on credit each month. Start by writing down your recurring and one-time expenses:
- Car payment
- Unexpected appliance replacement
- Dining out
- Entertainment expenses
- Birthdays and holidays
Then, subtract your expenses from your income to figure out your discretionary spending allowance. If the amount is zero, you are breaking even and may need to spend less money on a credit card to build a financial cushion. If the amount is less than zero, you are spending more than you earn and may need to stop credit card spending to avoid going into further debt.
When budgeting for the first time, track everything you earn and spend over the course of one month to determine whether you are earning less or spending more than you thought.
Look for opportunities to cut unnecessary credit card expenses (coffee or movie tickets, for example) or save more, and then implement the new spending plan in your budget for the following month.
Remember that food, shelter, and essential utilities such as power come before that new pair of shoes, iPhone, or Netflix subscription. If you don't stick to your budget in all categories, you may run out of money for necessities, such as tuition payments or health care expenses. Planning can ensure that you rarely, if ever, experience a shortfall in your finances.
One of the most effective ways to stop using credit cards is to stop carrying them with you. Instead, carry cash. Most retailers will not refuse cold, hard cash, and, unlike credit cards, you can only spend what you have; you can’t carry a balance forward, and therefore you won’t incur interest or go into debt.
When creating your budget and determining how much money you have for discretionary spending, start carrying that amount of money in cash instead of carrying a credit card.
For example, if you have an average of $100 per week in discretionary funds, pick a day of the week and withdraw $100 in cash from your bank on that day every week. Consider that amount as your allowance—once it's gone, don't spend more for discretionary purposes until the same day the following week.
Use Debit Cards
Debit cards offer an easy way to control spending on a credit card or stop using a credit card altogether because they offer the convenience of plastic without the risks. Like credit cards, debit cards let you buy things using plastic without the hassle of carrying cash. The difference is that debit cards only let you use money that you have rather than letting you borrow money, so you can't accumulate debt on a debit card.
Rather, when you use a debit card, the money gets withdrawn from the existing balance of your checking account. Once you have spent the balance of the account, the card will be declined, so you can quickly gauge whether you're spending too quickly and can make the necessary changes in your buying habits to stretch your debit card use further each month.
Moreover, debit cards can be used to withdraw cash from an ATM; access to plastic or cash makes debit cards a more versatile spending tool than credit cards.
Draw From Savings Accounts
Using a credit card to pay for an unexpected or large expense is one of the reasons people go into debt in the first place. It's important to build a reserve of cash you can draw from so you don't have to buy on credit the next time an emergency or a large planned expense arises.
Establishing a savings account for your emergency fund or other savings goals at either a brick-and-mortar or an online bank gives you the flexibility to make a major purchase down the road, be it a new water heater or a down-payment on a new home, and control spending on a credit card at the same time.
When creating a budget, treat these goals as expenses, and allocate a portion of your discretionary spending to each savings account so that they will grow over time. Many banks allow you to open multiple savings accounts and label them according to your financial goal so you can easily identify and pay into them each month.
Experts recommend maintaining an emergency fund equivalent to three to six months of living expenses.
Make Credit Cards Inaccessible
If you still can't stop using your credit card, take more drastic measures to put the card out of reach. There are several approaches you can take to keep yourself from falling back on the plastic in your pocket:
- Pause the card. This card feature gives you the ability to temporarily stop the use of your credit card for spending without reporting it as stolen or missing. Some credit card issuers refer to this as "freezing" a card. You can pause spending simply by logging in to your credit card account. New charges won't be authorized on the card. However, any payments you owe will still be due.
- Store it somewhere that you can't easily access. Safes and high cabinets are both good locations.
- Freeze the card in a block of ice. Keep in mind that it could take hours to thaw out your card when you need to use it again.
- Cut up the card. Many cards today contain metal, so you may not have the option to do so. Even if you succeed, don't cancel the card, because the available credit could help your credit score once you eliminate your debt.
- Delete stored credit card numbers in online store accounts. This will make it less tempting to charge your card and go into debt with a few clicks.
Once you stop using a credit card and gain control of your spending, look for ways to pay down your debt until you get rid of it. Paying down debt and bringing past-due credit card payments up to date can boost your credit score. With past-due payments, the more time that has elapsed from the due date, the greater the impact that repayment will have on your credit score.
Analyze your budget and sacrifice as much of your discretionary spending as you can tolerate on debt repayment to lower your debt as quickly as possible.
To speed up the process of paying down debt, consider transferring high-interest rate balances to a new credit card with a lower rate. Balance transfer cards often come with high transfer fees, and the lower interest rate may only apply during a limited promotional period. This means you should generally only choose this option if you intend to pay off the transferred amount during the promotional period.
If your balance is too big to pay down on your own, consider using a debt relief program. These programs come in several forms and may be able to provide you with a financial plan you can follow to pay down all of your credit card balances.
Credit counseling services are a great resource for learning the habits you need to pay off your debt and the steps you can take to build a solid credit history.