How to have a credit card if you have a spending problem
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Credit cards are a great way to spend your money, if you have the cash to back it up.
In fact, many of the experts we have interviewed at Policygenius Magazine advise using credit cards for day-to-day purchases because of their rewards. For example, licensed Policygenius adviser Patrick Bell pointed out that he prefers to use credit cards to gain points.
“Plus, I don’t like using my debit card,” he said. “It’s a lot worse to have your debit card stolen than your credit card.”
That’s because credit cards have better safeguards against theft. For example, if someone gets your credit card number, your liability caps out at $50 under the Fair Credit Billing Act. If they get your debit card number, your liability depends on when you find and report the charges. You could be responsible for the entire amount stolen.
Many credit cards offer additional perks, like rental car insurance, extended warranties and more.
Not everyone uses their credit cards as a smarter way to spend the money they have. Many use their cards as a way to spend money they don’t have. Experian reports that the average American credit card balance is $6,194.
If you are running a balance on one or more credit cards, read our guide to paying off your credit card debt..
If you have gotten into trouble with credit cards in the past but still want to use credit cards for the rewards and the security, here’s how to ensure you don’t risk running up your balance again.
One way to control your spending is to track it with a budget. Figure out the max amount you have each month for spending, and let that be the max you put on your credit card. Need help setting up a budget? Try our free budget spreadsheet.
Have a hard time enforcing your own rules? Consider asking the credit card company to lower your available balance. Doing so could affect your credit score by lowering your credit utilization ratio (that is, the amount of available credit that you are using), but if you really can’t control your spending, it could be worth it. If you’re concerned about having access to a larger amount of credit in an emergency, you could consider opening a second card you only use for true emergencies.
Set up your entire credit card bill to be paid each month. Knowing that the full amount comes out of your checking account each month incentivizes you to keep purchases to an amount you can pay off.
Secured cards are generally viewed as a “starter” credit card for people who have no or low credit and can’t qualify for unsecured credit cards, but they can also be a good option for people worried about overspending. Secured cards require a deposit from the user to serve as collateral and generally don’t provide any perks (in fact, many secured cards have high fees). But you will get the security of using a credit card and not a debit card.
In the moment, all spending can seem like necessary spending. It’s called present bias, and it means that we put the needs of our current self (the one that wants to spend money) over the needs of our future self (the one stuck with the bill). To overcome present bias and keep yourself from overspending, it can help to implement roadblocks that make you pause long enough to consider that future self. One easy one: Don’t save your credit card information on any online sites. Having to get your credit card and type in the numbers can often be enough to stop impulse online spending.
Another great roadblock comes from licensed Policygenius adviser Warren Robbins.
“I always think about purchases in terms of the three questions,” he said. “Do you need it? Do you want it? Or both? It’s simple but effective.”
Just pausing to ask the three questions can be enough of a roadblock to keep your spending in check.
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