Credit card overspending is an easy trap to fall into. It doesn’t necessarily feel like you’re spending a ton of money, but your monthly bill may make you think otherwise. And if you don’t pay it off by the end of the month, you could be stuck making high-interest-rate payments.
If you find yourself going over your credit limit, know that with a couple of good financial practices you can get back on track. Here’s how to avoid credit card overspending.
Why you should avoid credit card overspending
Credit cards can be a great asset, especially considering that many offer cashback rewards and other perks. The downside is that they also make it incredibly tempting to spend beyond your means.
It’s easy to forget how much you’re charging when funds are not withdrawn from your account. In other cases, it may seem like a good idea to break up large purchases into multiple monthly credit card payments.
But when you take into account the sky-high rates that come with credit cards, you’ll quickly find yourself spending more just to keep up with interest payments. This can quickly lead to a cycle of debt, where you’re shelling out more and more while other areas of your finances suffer.
All too often, card overspending is associated with high-interest-rate debt and a damaged credit score.
Best ways to avoid credit problems
Credit card overspending is best to be avoided at all costs. You don’t need to dismiss credit cards altogether, but there is a responsible way to use them to maximize their benefits.
Here are some best practices to help you avoid credit card overspending and lower your existing credit card debt.
Only spend what you can afford to pay off
Credit cards make it easy to spend money you don’t have. After all, you’re not technically handing over your hard-earned cash. In a way, you’re buying yourself some time before the bill comes in. But once it comes in, you’ll need to pay extra if you can’t cover all of it.
As a rule, you should only put purchases on a credit card if you have the money to pay for them in full by the due date. It’s critical to pay off your entire balance at the end of each month. This is the best way to avoid paying interest and fees. It’ll also reduce your chances of falling into credit card debt or hurting your credit score.
Curb impulse purchases
With online and mobile shopping on the rise, it’s never been so easy – or tempting – to make impulse purchases. If you’ve ever splurged on a piece of clothing you’ve only worn once or a tech product that’s collecting dust in your closet, you probably understand the phenomena.
A good strategy is to wait some time to determine if you really want a product or if it’s just a passing impulse. It’s best to avoid shopping when you’re emotional or immediately after your paycheck deposits. If you do fall for an impulse purchase, try your best to return it in a timely manner.
Look to your budget, not your credit limit
High credit limits are designed to make you feel your purchasing power has increased. Unfortunately, this is a mirage. You’ll still have to pay the bill at the end of the month. The only difference is that now you’re paying even more for interest.
Do your best to ignore your credit limit, and focus on your budget instead. You want to be allocating a set amount to your bills, debt payments, and savings. After taking those factors into account, you can map out your discretionary spending.
Stick to your financial goals
One of the most impactful ways to avoid credit card overspending is to create a budget or financial plan and stick to it. It’s important to understand how much you have coming in each month and track your spending accordingly. You may find you’re overspending on certain items and neglecting important areas – like your savings or debt payments.
Determine how much money you have to allocate for needs and wants. Ideally, you should prioritize high-interest-rate debt as well as your savings. From there, you can calculate how much you can spend on entertainment and other wants. Ideally, your credit card spending should stay within the margins allocated for discretionary income.
Don’t get carried away by rewards programs
Credit card rewards programs can be a great bonus, but they’re also an incentive for overspending. Getting carried away with reward programs, to the point where you’re spending more than you can afford to pay off at the end of the month, is only going to work against you.
You want to use these rewards programs responsibly, so you’re getting the most out of your credit cards. Remember to stick to your budget and never spend more than you can afford to pay back in one billing cycle.
What to do if you overspend your credit card
If you have taken on more debt than you can manage to pay back in a month, you’re not alone. Millions of Americans find themselves in this exact situation.
The first thing you’ll want to do is stop using your credit card. Once you’re in debt, accumulating a bigger credit card balance will only increase the amount you’ll need to pay in interest each month. This is incredibly expensive and will make it difficult to pay off all your debt quickly.
The next thing you want to focus on is curbing your spending. Cut out unnecessary expenses and allocate those funds to your credit card debt. Try and make more than the minimum payment, as this will help you get out of debt faster and save in the long run.
Finally, research and create a solid debt repayment plan. Many consumers will focus on allocating as many funds to the credit card with the highest-interest rate while making minimum payments on the other cards. Once the first card is paid off, they’ll roll over funds toward the next card.
You can also implement a strategy where you focus on paying off the card with the lowest balance first, snowball funds to the next card, and so on.
The bottom line
Credit card overspending can be a slippery slope. If you’re not careful you could find yourself struggling with high-interest-rate debt and even a damaged credit score. But this doesn’t happen. So long as you implement the best practices now to avoid credit card overspending, you should be in the clear.
If you have already overspent your credit card, do your best to return your purchases, focus on budgeting, as well as a debt repayment strategy. You may not dissolve all your debt overnight, but with time, you will make progress.
What happens if you spend over your credit limit
Your credit card getting declined, facing additional fees, higher interest rates or even a closed credit account are just some of the things that can happen if you spend over your credit limit.
Can you overcharge a credit card?
Yes, some credit card issuers may allow you to go over your credit limit – but that doesn’t mean there won’t be consequences for doing so.
Is it okay to go over your credit limit once?
Going over your credit card limit is never a good idea, but if you stop now you may be able to avoid the worst-case scenario.