Is chronic overspending busting your budget and keeping you in debt?
One surprising way to control overspending is by using a low limit credit card.
My Story
Although I live by a zero-based budget, our credit card has a very high limit.
Having a high credit limit allows for what I call senseless swiping. Swiping the credit card for every little thing, only to be surprised at the depth of overspending.
One day, it occurred to me that I had a very old, little used credit card with a credit limit almost exactly equal to my monthly budget for my day-to-day, routine expenses.
I decided to experiment and see if using a low limit credit card equal to my budgeted spending limit would help control my overspending.
The first week was a wake-up call. My card was declined when going through McDonalds. I was over the limit with three weeks left in the month.
It turns out that the hard stop that accompanies a low limit credit card is definitely a surprising solution to overspending.
If you would like to control your overspending, and the knot of dread that comes with it, follow some basic best practices for using a low limit credit card.
First, designate one card for the exclusive use of routine, everyday spending.
Gas, groceries, and unplanned spending (eating out, birthday gifts, etc.), are the typical everyday spending categories.
This is the card that will be used for all future purchases of any of those items.
If you have an Amazon habit, hook this card to your Amazon account.
Next, set a realistic budget for these routine expenses.
If you’re unsure what that amount should be, stop and figure it out.
Without a definite spending limit in place, this method will be a quick and devastating fail.
Use a zero based budget to come up with what the amount should be.
At the most, the budget for spending is the amount left over from your net pay after all expenses have been subtracted.
Request the limit on the designated card be adjusted to the budgeted amount.
Believe it or not, you can request a lower limit on an existing credit card.
However, do not do this if it is your only credit card.
An alternative option is a debit card that’s associated with a separate checking or savings account into which the budgeted amount is routinely transferred.
Most importantly, pay the credit card often and in full.
Each time you get paid, or out of whatever paycheck you have budgeted your spending limit, immediately pay that amount on the card.
Example: You get paid twice monthly. The budgeted amount for spending is seven hundred dollars per pay. Each time you get paid, pay the seven hundred dollars, or whatever you owe on the card.
Since the credit limit is equal to the amount you’ve budgeted, paying the card in full should never be a problem.
The first time you don’t pay off the credit card and choose to use the cash for something else, quit.
This is not the right solution for you!
There are some key things to keep in mind if you decide to use a low limit credit card to control overspending.
If using credit is a temptation, don’t use a credit card.
Instead, opt for a debit card associated with a separate account opened solely for this purpose
The danger of a debit card is that often the bank will let the charge go through but charge you a hefty fee for doing so.
Choose your credit card wisely.
Choose a credit card that does not allow going over the limit.
Just like a bank, the credit card may allow the charge to go through but charge you a hefty fee for doing so.
Check your preferences online and set the option to do not allow me to spend over the limit.
Pick a card with low interest and no annual fee.
Don’t look for bells and whistles in the form of rewards.
Choose a credit card with a low interest rate and no annual fee.
Decline any automatic increases to your limit.
The point is to keep the limit low, forcing a situation where you are unable to overspend.
Check your balance often.
It’s easier to keep from overspending if you check your balance often, even daily.
When you reach the limit, don’t reach for another card.
Quit spending until the balance is paid down and the credit is replenished.
That’s the point. A hard stop keeps you from overspending.
Is chronic overspending busting your budget and keeping you in debt?
A low limit credit card could be the solution that helps get your spending under control!
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Comments or questions? Email me at Micki@LivingbyLittles.com
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