We can all slide into questionable habits. Eating a second helping of pumpkin pie. Overdoing it at the gym on the weekend. Not flossing every night. Most of these habits aren’t too serious and won’t have long term ramifications. However, falling into undesirable money patterns is another story. Here is how to break your credit card bad habits.
Americans get an awful rap for their lack of financial literacy. Yet that doesn’t mean all is lost if money seems to slip through your fingers like water.
Whether you prefer debit cards or credit cards, the following strategies will help you get back on track.
If you’ve lost a sense of perspective over your personal money management, regain control by taking a few steps.
Keep an account of your spending for a month.
It’s hard to stay on top of your finances if you’re unsure exactly where you’re making missteps. For the next month, write down everything you buy. Your list will include everything from your rent payment to the energy bar you purchased after getting gas for your car.
When the month is up, you will have a solid snapshot of where most of your money is going. Don’t be surprised to find out that you make a lot of impulse buys. Retailers are set up to tempt shoppers with at-the-counter items. Don’t be too hard on yourself as you look over your spending information. Instead, use it to guide you as you move to the next phases of improving your financial management.
Check your bank account amounts daily.
If you haven’t already started to check your credit or debit card accounts daily, add it into your routine. Seeing how money is being spent every 24 hours can give you a better picture of your transactional ebb and flow.
A side benefit of diligently checking your accounts is the opportunity to catch mistakes. For instance, if you see a suspicious charge on your card, you can call your financial institution immediately. The sooner you address those types of concerns, the less effect they’ll have on your stress level.
Put daily spending limits on your debit card.
Did you know that banks can allow you to set up specific daily spending limits on your account? In fact, most banks do this anyway, with limits ranging from $500 to more than $3,000. However, you don’t have to wait for your bank to set your spending budget. You can do it yourself.
A spending budget doesn’t mean that you can’t pay off an emergency bill, such as for payment for a new furnace installation in the wintertime. You just have to call your financial institution first and authorize the larger charge. Having a ceiling on what you know, you can spend each day will help you be more thoughtful about what you purchase.
Set aside a percentage of your income automatically.
Chances are strong that you have your paycheck delivered right into your bank account. With the right type of account, you can set up automatic disbursements of some of these funds to other accounts.
Here’s an example of this working: Let’s say you receive $500 from your employer. You can arrange to have 10%, or $50 moved into a savings account like clockwork. You won’t have to do anything. You’ll just see the money go from place to place when you’re checking your accounts every day. Just make sure you don’t touch your savings account. Rather, let it accrue, so you have a nest egg.
Avoid maxing out your credit cards.
You just heard from your credit card company. Your spending limit has been raised to $3,000. The first thought in your mind? Now you can upgrade to the new smartphone you’ve wanted. But is maxing out your card the right move?
Accounting pros say “no,” because having very little wiggle room in your credit cards increases your credit utilization rate. And that affects your credit score. Ideally, you want to make sure that your credit utilization ratio remains at a healthy, low level. Save maxing out your credit cards for true instances where you have no choice but to use the card.
Think twice before adding authorized users to any credit card.
It’s hard to say no when a loved one or best friend asks to be added as an authorized user on one of your credit cards. This can make sense if, say, you’re married to the person. On the other hand, you must be certain that the other user will not end up causing a negative impact on you credit-wise.
Before ever agreeing to allow someone else to use your credit card, know their credit score. Understand their relationship with money. Are they responsible? Do they pay their bills on time? If you’re not 100% sure, you probably shouldn’t give them the keys to your credit.
Pay down your credit cards quickly.
When you receive your credit card statement each month, you’ll see a minimum payment obligation listed. Instead of paying that amount, try always to pay substantially more. What’s the issue with paying at the minimum level? You’ll accrue lots of interest and end up losing money month after month.
Ideally, you shouldn’t carry any balances on your credit cards unless you’ve negotiated a zero-interest, limited-time offer. The faster you can pay down your credit, the more money you’ll keep for yourself.
Call your credit card company to ask for a lower interest rate.
After diligently paying down your credit and getting on top of your finances for six months to a year, call your credit card issuer. Ask if you qualify for a lower interest rate. Then, wait to see what the representative says.
You might be surprised at how often credit card companies are willing to reward you for paying on time. They’re in a competitive industry, after all, and don’t want to lose your business. The worst thing they can say is no, which only means you should try again in the future.
Breaking bad financial habits doesn’t happen overnight. Be patient and persistent. Before you know it, you’ll be the master of your money.
Image Credit: anna shvets; pexels