28 APRIL, 2022

A credit card can be your best friend who never refuses to lend you money in times of need. However, not keeping a check over your credit card spending can surely get you into a debt cycle. You should treat your credit card limit just like any other debt because you will need to repay that amount soon. Not repaying your debt timely can lead to an additional financial burden in the form of interest charges. You must follow the best practices to control your credit card spending. Before you apply for credit cards, make sure that you can repay the borrowed amount.


Why you must control your credit card spending?


There are many reasons why you must keep a check on your credit card spending. Buying unnecessary goods and services just because your credit card allows you to can do serious damage to your fiscal planning. Overspending by using your credit card can also affect one of the key metrics that influence your credit score. We are talking about the credit utilization ratio. It is defined as the percentage of your total credit limit spent in a given cycle. Higher spending will lead to a higher credit utilization ratio, which will negatively impact your credit score. A lower credit score will affect your eligibility for a bigger loan amount in the future. Read on to know more about things you can do to effectively control your credit card expenses.


Tips to control your credit card expenses


Most people who go on a blind shopping spree using a credit card don’t exactly know what is a credit card. Not having complete knowledge of how credit card works might lead to a debt trap. You must always keep your credit card spending within the desired limit so that you can easily repay the due amount without incurring additional interest charges. Let’s take a deep dive into how you can control your credit card spending.


1. Keep a tab over your spending


The first step to effectively controlling your credit card spending starts with tracking all your spending activities. A credit card statement gives a detailed summary of your monthly spending. This will give you a fair idea of your spending pattern and habit. Once you know where your money is going, you can start controlling unnecessary expenses which are adding to your financial burden. This will also allow you to keep a check on your impulse buying habits and avoid the same.


2. Analyze your monthly statements


The details of your credit card monthly statement are not just limited to your purchases. It has several other components that you must analyze closely. Reading your credit card statement thoroughly can also help you identify any fraudulent charges. Most credit card companies protect the cardholder’s rights against fraudulent transactions. However, these transactions must be brought to the notice of your credit card issuer to take necessary action against the same.


3. Utilize the grace period wisely


A grace period is a duration between your credit card statement generation and the payment due date. So, what’s special about the grace period? Well, the special thing about the grace period is that you are not liable to pay any interest on the outstanding amount for a particular cycle during its grace period. Paying off your dues within the grace period will reduce or eliminate any interest charge that could have been applied if you failed to pay off your debt. Most people believe that paying the minimum due amount will make it right, but they fail to factor in the interest charges that are added to the outstanding balance.


4. Defer bigger expenses


If you learn how your billing cycle for credit cards works, half of your worries are over. You will be easily able to manage your expenses without any extra effort. If you are planning to purchase a high-ticket item, such as a TV or refrigerator, you must try to time it in a manner that shows up in your next billing cycle. It will provide you with ample time to pay off the entire amount before the due date for this expense. This will help you avoid any interest charges on the outstanding balance.


5. Set spending alerts


Setting up spending alerts will help you effectively manage your expenses incurred using a credit card. You can try to put a cap on your overall spending limit or a single transaction value as per your needs and budget to make sure that you don’t overspend. It will help you keep a check on your spending behavior in real-time. You should also sign up for an SMS alert on your credit cards so that you get a message every time a transaction takes place. This will also help you track every transaction.


6. Create a spending budget and stick to it


One of the most important steps that you can take to control your credit card spend is creating a budget. You must create a practical budget based on your spending patterns and needs. It should factor in the essential expenses that you need to make. Ideally, your spending budget should not exceed a credit utilization ratio of over 35%. This can impact your credit score negatively. Once you have factored in different elements and created a budget for your monthly bills, make sure that you stick to it. Avoiding impulse purchases can help you easily stick to your plan.


7. Use your credit rewards effectively


Most credit card companies offer different rewards and loyalty points to users. You must learn everything about these rewards from your credit card issuer to make the most of them. You should utilize these rewards while purchasing different types of goods and services to save a good chunk of money. For example, people with a travel credit card can get discounts on flight tickets and hotels if they pay using their credit card. You should always be mindful of the reward offers on different segments.


Final words


It is wise to apply for credit cards that offer rewards best suitable for your spending patterns. One can easily follow the tips mentioned above to effectively control credit card expenses.

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Disclaimer: This Article is for information purposes only. The views expressed in this Article do not necessarily constitute the views of Kotak Mahindra Bank Ltd. (“Bank”) or its employees. The Bank makes no warranty of any kind with respect to the completeness or accuracy of the material and articles contained in this Article. The information contained in this Article is sourced from empaneled external experts for the benefit of the customers and it does not constitute legal advice from the Bank. The Bank, its directors, employees and the contributors shall not be responsible or liable for any damage or loss resulting from or arising due to reliance on or use of any information contained herein. Tax laws are subject to amendment from time to time. The above information is for general understanding and reference. This is not legal advice or tax advice, and users are advised to consult their tax advisors before making any decision or taking any action.