Using a Credit Card to Keep Spending in Check

When I was in college, I got into a couple of binds with credit cards. I was living paycheck to paycheck with little cash left for any kind of fun. So what did I do? Why I started to use my emergency credit card for non-emergencies. I racked up a sizable amount of debt by the time I graduated, and it took years to pay off. After that experience with credit cards, I vowed to never use one again.

Where’s that story going? Well, I wanted to show you all that I don’t believe that credit cards are always a great solution to finance problems. They can cause more harm than good. However, sometimes they can be helpful in certain circumstances. Sound strange? Well let’s take a closer look.

Spending Limits

There is one magical thing about credit cards; they have spending limits. When you max out, you max out, and Visa won’t give you any more credit. The beauty of this system is that if you have a low limit credit card, you will be cut off from spending another dime at a certain point. To get more cash from Uncle Mastercard, you’ll have to make a payment.

This means that a responsible person could use a credit card to keep from spending too much money in any given month. Once they hit that low limit spending wall, they will be forced to wait on additional purchases. This same responsible person will ideally pay off the total accumulated each month, and when the new month rolls around, they once again have their limit to spend.

Limits to Credit Cards as a Spending Limit Tool

Of course, there are many limits to this system. Some credit cards will set a limit but allow you to overspend. You may have to check with your credit card company about their policies before jumping on board. Another pesky thing to watch for is increased limits. When you’ve been a wonderful paying customer for a while, many credit card companies will increase your spending limit with little or no advance warning. So where your limit may have been $200 before, they may increase it to $500, which would allow you to overspend quite a bit in any given increase month.

Perks to Credit Cards

To balance the potential negatives in credit cards, there are some perks. Establishing any credit account can help build your credit score over time. As long as you’re careful to open a few select credit cards (think: not every card available to man), using your credit card responsibly will build credit. Additionally, many credit cards now offer rewards programs, so if you use the card and pay off the balance each month, you can be ahead of the game financially, what with cash back or airline miles that didn’t cost you a dime.

When I think back on my experience with my credit card, I know that I would never choose to open a card to avoid overspending. For me, there’s just no safe, happy medium with the “magical money.” For others, though, credit cards can help avoid overspending, can help build credit and can return great rewards. All when used responsibly.

How about you: do you use credit cards for the rewards, for building credit or to avoid overspending?

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