One of the most persuasive pieces of advice we hear about credit card spending is to limit how much you use them in an effort to reduce debt. In fact, we may even hear advice about paying off all our credit cards and then cutting most of them up until you have one left to use in an emergency.
Yet it isn’t vital to destroy all your credit cards or refuse to use them until absolutely necessary to take control of your spending habits. In fact, refusing to use credit can cause issues to your credit score. You may be scaring lenders away when the time comes to take out future loans.
- Measuring Your Credit Worthiness
Lenders look at your credit score and history to see how well you manage debt to determine whether you would be a good loan candidate. So they need to see what types of debt you currently have, and how well you make payments. Lenders determine your creditworthiness by checking out your credit limit.
Let’s say that you have a credit limit of $1,500 and only use the credit card to make purchases that never go over $100 a month. At the end of each month, you pay off that $100 before the due date. This credit card activity is a clear indication that you can manage your credit limit and payments well.
On the flip side, if you have the same credit limit of $1,500 and you are constantly nearing that limit by spending $1,350 a month, lenders begin to worry. It can take very little for you to miss a payment and find yourself playing catch-up month after month. A lender will wonder whether you have the ability to confidently pay off owed balances as this situation can bring down your credit score.
- Credit Card Spending Tips
To help with your credit card spending without cutting up the cards, there are several steps you can do to keep your balance down and help you to make payments. Then you won’t have to worry if you have multiple credit cards.
- Reschedule Payment Dates for More Convenient Times
One of the easiest ways to help with your spending is to ask the credit card company to move your payment date. This tactic is ideal if you don’t get paid on a regular schedule or your payment date comes before your paycheck. You lower your chance of missing a payment, as credit card payment history accounts for about 35% of your credit score.
- Try to Pay in Full Each Month
If you can, pay the full amount of your credit card each month to keep your balance low and avoid paying extra interest each month. If you make a large purchase, you can make smaller payments throughout the month to try to bring the balance down as much as possible in the quickest amount of time.
- Track Spending Habits
It happens to all of us. We purchase the small items continuously while thinking that we are nowhere close to our budget limits. Yet those small purchases can really add up.
If available, set up alerts tied into your credit card balance that will send out a text message or email. These alerts can warn you when your spending is reaching the credit card limit. Also, log into your account daily to check your balance. You can evaluate your credit card spending for instances of unnecessary expenditures.
We’re Here to Help!
Paying off your balance on time and tracking your expenses can allow you to lower your debt without destroying your credit cards.
If you have questions on budgeting or paying off credit card debt, schedule an appointment with one of our certified financial counselors.