How to prevent overspending with a credit card

Quick insights

• Adopting mindful spending habits when using credit cards can help you avoid overspending and accumulating debt.
• Understanding how to manage your credit card effectively can prevent financial stress and contribute to your financial goals.
• Creating a budget, setting spending alerts and reviewing your credit card statement are just three examples of strategies you can use to try and help prevent overspending.

Numerous studiesec-forbes-cash-card on the psychology of shopping have shown that credit card use can lead to spending more, and more often, than shopping with cash. Why does it sometimes feel easy to overspend and how can you prevent it from happening?

Why is it easy to overspend on my credit card?

Credit cards can provide a sense of disconnect from spending with actual cash, which may make it easier to overlook the accumulation of expenses. The convenience of credit cards can allow for quick and easy purchases, but this can also lead to impulse buying. From online shopping to last-minute sales, impulsive purchases can lead to unplanned spending that doesn’t fit into your budget.

Beyond the ease of making purchases, the terms and function of credit cards can also lend themselves to overspending. Credit limits can create a psychological “spending ceiling” that some may feel compelled to reach, especially if the credit limit is high. The option of paying only the minimum payment each month can give a false impression of affordability, potentially encouraging more spending while masking interest charges and overall debt.

Between the instant gratification and delayed consequences, it can be easy to overspend if you’re not careful. This may lead to numerous consequences on your credit score and finances.

Consequences of continued overspending on your credit card

The consequences of overspending include, but are not limited to:

• Increased debt burden: Consistently spending beyond your means can lead to significant debt accumulation that might become unmanageable over time. This debt can grow exponentially due to interest rates, making it harder to pay off.
• Credit score impact: High credit utilization and carrying a balance that is too close to your credit limit can negatively impact your credit score. Late or missed payments can also become more likely as debt increases, and this can severely damage your credit score.
• Financial stress and anxiety: The burden of rising debt can lead to significant stress, affecting mental health and leading to anxiety about financial security.
• Limited financial opportunities: A poor credit score and high debt-to-income ratio can restrict your ability to qualify for loans, mortgages and rental agreements, impacting your financial mobility.

Ten tips to avoid overspending and manage your credit

Now that we know how and why overspending might be made easier with a credit card, here are some strategies that may help avoid it:

• Create a budget and stick to it: Consider establishing a monthly budget and defining clear limits on how much you can spend on your credit card each month. If you stick to this budget strictly and track your expenses regularly you may be able to avoid exceeding your set limits. There are many free online tools available to help you with budgeting and financial planning, including the Budget Planner on the Chase Mobile^® app.
• Use cash or debit for certain categories: For daily expenses or categories where you tend to overspend, such as clothing shopping or dining out, you may want to consider using cash or a debit card. This can help keep your credit card spending in check and help keep you aware of the money you're spending.
• Set alerts for spending limits: Most credit card companies allow you to set up alerts that notify you when you’re approaching a set spending amount. This can help you to minimize credit card spending without sacrificing the potential rewards points you can earn with a credit card. Setting alerts to a fraction of your credit limit can help keep your spending in control. For example, if your credit card has a credit limit of $2,000 but you set a spending alert at $500, it might help remind you how much you’ve already spent this month and potentially reduce further spending.
• Leave your card at home: For events or outings where you might be tempted to overspend, consider leaving your credit card at home and taking only the amount of cash you plan to spend.
• Unlink your card from online stores: Remove your credit card information from online stores to add a step in the purchasing process, giving you time to reconsider impulsive buys.
• Regularly review your credit card statements: Make it a habit to check your statements monthly so that you can track your spending patterns and address any discrepancies immediately.
• Automate payments for the full statement balance: Set up automatic payments to clear your full credit card balance each month, if possible. This prevents interest from accumulating and helps maintain a good credit score by avoiding late or missed payments.
• Negotiate lower interest rates: If you consistently make payments on time and have a good credit history, you may be able to negotiate a lower interest rate with your credit card issuer. A reduced interest rate can decrease the cost of carrying a balance. When contacting your lender, be prepared to highlight your loyalty as a customer and your solid payment history as reasons for a lower rate. If your initial request wasn’t approved, you can check back periodically, as offers may change based on your account status or changes in the credit market.
• Seek professional advice: If you find yourself frequently overspending and struggling to manage your credit card debt, it might be time to seek professional help. Financial advisors or credit counselors can review your financial situation and provide tailored strategies to manage your debt, including creating a budget that fits your lifestyle, helping you cut costs and helping negotiate with creditors on your behalf. While these services can be costly, it can be worth investigating non-profit organizations, websites and apps that may offer credit counseling services at low or no cost.
• Educate yourself about managing your finances: Free tools like Chase Credit Journey^® can help you view your credit score and free credit report, provided by Experian™. It also offers free identity monitoring and access to several educational resources and tips for ways you can improve your credit score over time. Consider familiarizing yourself with the terms of your credit agreements, including interest rates, fees, grace periods and penalties.

Bottom line

Managing your spending on credit cards requires awareness, discipline and proactive strategies to ensure it aligns with your overall financial health. Implementing practical steps to monitor and control your spending can prevent the pitfalls of overspending and help maintain a healthy credit score. Thinking about the long-term implications of your credit card use can potentially help you stick to a budget and achieve your financial goals.