I was at a get together recently and I had this conversation with someone, that if I’m being 100% honest, I think I have had mentally about a thousand times before I actually had it out loud.
“I need your help with my money.” my friend asked.
Me, eager to help, “Sure what can I do?”
“Well, I’m good with money, but it’s my damn credit card spending. I always pay it off in full every month, never had a late payment, or an interest penalty. But every month it feels like this card wipes out all of our funds. What should I do?”
“Umm….” I said, “Have you tried not using the card?”
“Well yeah but,” he continued, “I get cash back for everything I do. If I’m spending $2000 a month, I want to get back my $20 to $80 depending on what I have bought. It seems like a waste otherwise.”
“I totally get that. I’m the same way. If I’m spending money then I want to get something in return, whether it’s cash or points.”
“Right?!!” he said, I could see that he was surprised that I was on his side with all of this. I was sure at this point he thought I would go into a rant about credit cards being evil, but he was delighted that it never happened.
“So what do I do???” he asked.
“I’ll get back to you” I said.
A few weeks went by and I thought about that question.
I think we have all been there. It seems like every month your credit card bill is larger than you want it to be.
For years now, I look at how much we spend as a family and it drives me mental thinking about our credit card statement. I obsessed over this question. How do I control credit card spending, without cutting them up?
Every month it’s the same cycle.
Credit card bill comes in. Andrew (I don’t normally refer to myself in the third person, swear to god I’m mostly sane… mostly), looks at it in a puzzled sense wondering how has this happened.
Andrew decides something needs to be done about it.
Andrew has no clue what to do besides say, “I’ll just pay closer attention to what goes on the card.”
Fast forward a month.
Credit card bill comes…
Andrew is confused again… or still, it’s hard to say since I’m confused.
Here’s the dilemma
I have given this a ton of thought lately. Here’s how I see it:
needwant to have a big enough credit card limit, in case there is a need for a large purchase (car repair, or something sudden).
- I view myself as an adult, (largely because I’m older than 18 and have kids, and that’s the lowest definition I can come up with) and therefore somewhat good with my money
- I deserve things and stuff (two very technical words there, but you get the point).
- I haven’t had a problem paying off my credit card every month, so there really isn’t a problem.
That last line is the important one.
“I haven’t had a problem paying off my card every month, so there really isn’t a problem.”
That’s like saying, “I haven’t had a heart attack yet, so I must be healthy.”
It’s just one of those little lies I tell myself (c’mon we all do it). 😉
I think because I meet my monthly bill obligations I think I’m doing good adulting. When really I’m not.
This needs to change.
I need to get better with my money, if I want to break free and move on to bigger and better things.
And to get free I need to make changes. They don’t have to be huge changes, but I do have to change.
Remember it’s the little changes that add up.
Simplest Way To Control Your Credit Card Spending
The simplest way would be to cut up your credit cards and go to cash, or debit with no overdraft protection. That will sober up your spending pretty quickly.
But I don’t really like that idea.
Mostly because it feels like I’m leaving money on the table, and that’s a pet peeve of mine.
I have a cash back card (actually two), and I like to use it for my everyday purchases. Because around November I get a nice check for the spending I have done through the year. If I don’t use a card, then I don’t get that cash back.
(I’m just going to avoid the whole issue of when you use credit instead of cash you actually end up spending more, but you will see why in a second).
Here’s what I’m doing.
I’m calling the bank and lowering my limit.
I don’t ever, EVER want to spend more than $3000 a month on my card. That’s the new limit, that’s the amount I can stand to get in the mail every month and say: “Oh, it’s in line with our plan.“
Here’s what this is going to do, it’s going to put me on guard. Big time!
If you have ever had a card declined at a store, you know how embarrassing it is. You have the clerk giving you that look like: “Looks like someone didn’t pay their bills”, while you embarrassingly search for another way to pay.
That’s a look I’m going to avoid.
What about emergency purchases?
Great questions! You’re so smart. Part of having a credit card is for emergencies.
Here’s my 3 ways of getting around the “emergency” purchase. I use brackets because my emergency would end up being a TV on sale. Feel free to pick one.
1- If I need to make an emergency purchase, most likely it’s not that big of a deal. I will call the company and get my limit raised temporarily, or I will put down money on my card so that I can clear up the limit.
2- I will have a second credit card, in a block of ice in the freezer that I never use, because it’s in a freezer, and from there I will thaw it out and use it if need be.
3- I will pay cash, which is probably the best out of all of them, if you ask me. Because that means I already have the funds.
4- Everytime I spend money on my card, I can put more down to zero out the balance still leaving $3000 free in the account.
Is this a fool proof system?
No, it’s been thought up by a fool (Hi! I’m Andrew) but that doesn’t make it fool proof. What it does do is guarantee that I can’t go over my limit, and that below that limit is where I want it to be.
If this idea doesn’t fit you here are 3 other ways to cut your credit card spending
1- Put the card in the earlier mentioned block of ice.
2- Cut up your card and go to debit cards, better yet, go cash. It’s by far the best way to be.
3- Put them in an envelope and give them to a trusted person only to be used when needed
4- Leave them at work over the weekend.
What do you think about this idea? Is it a formula for success or disaster? Let me know in the comments.
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GETTING OUT OF DEBT
So are you suggesting not to use your card to get those rewards because you are spending more money in the long run by using it?
I like the return I get but not sure how to do both responsibly;)
It’s a hard call. If you use your credit card you are likely going to spend more as opposed to cash where once it’s gone, you’re done. I’m going to stick with my cash back card but stick to the lower limit. That will force me to pay attention to it on an on-going basis and manage it more actively than I currently do. It’s like keeping the reward card, but using it more like a debit card.
That said whenever we have a cash week or cash month, we always spend less. I’m hoping this new balance is the way to go.
The only issue I see is that you will have a really high credit utilization rate, which may lower your credit score. There’s definitely trade-offs when it comes to credit cards.
My #1 tip is this: always look at your bank account balance and credit card balance together, essentially looking at it as if the money you spent on the card already came out of your bank account. I’m adamant about tracking everything I spend and honestly don’t feel that I spend any more on a credit card than I do if I spent cash. Why? Because I changed my mindset to view my money as already gone the second I spent the money, even though the card hasn’t been paid yet.
That’s a good point about the credit utilization rate. I wasn’t even considering that, I was more focused on lowering the monthly credit card bill. I love your #1 tip. I think if we all did that it would be less of a shock at the end of the month for sure!
Credit card limits are insane these days – I just applied for a new one and was approved for over $20,000. No, that’s not a typo, and yes, I was just as floored. You need to be making way more than I am for that kind of spending.
I agree with Making Your Money Matter, though, in that lowering your limit will affect your credit score. However, it’s a matter of where your priorities lie, and if saving is at the top of that list, it may be beneficial to lower that credit card limit. It can always be raised again when you’re looking to take on debt, which will give your score a boost again.
That is insane for a credit card limit! The last credit card we got they matched the last one, so they effectively doubled our credit limit, just because. Not that we ever go crazy with it but it would be waaaay nicer to have a lower balance at the end of the month. Another good point on the credit score. I was thinking of it more along the lines of avoid that end of month shock that we all seem to have more often than we would like.
I would submit that you shouldn’t be utilizing credit cards for emergencies, because – emergency fund. If you still pay the bill off at the end of the month, then you could have cash flowed said emergency. I’m in the no credit card camp. I just think they are too dangerous for most people.
I would agree with you on the emergency fund and credit cards being dangerous. I use them but I’ve always been responsible with them. That said if you are inclined to overspend and don’t know where your money is going, it is best to avoid credit cards.
These ideas are great and funny. Ty!