It’s quite easy to rack up credit card debt, and when you do you’ll begin to research ways you can get out of it. While you research the perils of debt and how to claw your way to a debt-free existence, you’ll read about the dangers of credit cards. What you won’t read, however, is how credit cards can actually help you curb spending when they are used responsibly.
Can you misuse credit cards? Of course you can. But you can also use them to your advantage and avoid the pitfalls of debt. Here is what I have discovered:
Spending Limits
Credit cards are miraculous little things that have spending limits. Okay, we all know this, you’re not telling me anything new, you’re thinking. That’s true, we are all very aware that credit cards have spending limits. However, what we may not know, and what I didn’t know, is how to use these limits to your advantage.
Let’s say that you have a credit card with a low limit of $200. Let’s also say that you’ve set an entertainment budget of the same amount. Your entertainment budget could include movies, books, toys for the kids or any number of miscellaneous “wants”.
Once you’ve hit your $200 limit, you can’t spend a penny more if you dedicate that credit card to your entertainment. Until you pay off your card, you’re stuck in the house. I found this incredibly helpful in curbing my spending; let me explain.
(Credit for the above photo goes to: 401kcalculator)
When I created my budget, my entertainment allotment was $250. This included date night with the husband, my Netflix account and outings with the kids. Each month I only used my credit card to make these purchases and when I hit my limit, the entertainment was over. I pay my credit card, in full, each month and we can all be entertained again.
If I didn’t dedicate my card to this portion of our budget, I could very easily go overboard and not give it a second thought. I’ve found that by using my card, I’m more careful with how we spend our money. Do we really need to rent that movie? What if we want to go out to dinner next week? Over time, I have become much more conscientious of how that money is spent.
You can do the same thing. You can use your low-limit credit card for any portion of your budget: gas for the car, food for the dog, even toys for the kids. The key to using a credit card in this manner is actually stopping when you’ve reached your limit. That means that you don’t use cash or even your debit card once you’ve reached your spending cap.
Rewards
Another great thing about using your credit card often, and paying your balance in full each month, are the rewards you can earn. If you have the right credit card, you can receive rewards in the form of cash back or even airline miles. By using your card for things you would otherwise have purchased with cash, you can sit back and reap the rewards.
Using your credit cards responsibly can not only help you curb your spending but build your credit as well. The key, as with anything in life, is to act with a bit of common sense. Devise a plan and stick to it!
Author Jessica Stevens is a financial consultant and content contributor for wisebread.com, a site offering reviews on some of the best travel credit cards and great money tips for living large on a small budget.
