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10 Tips to Wisely Use Your Credit Card for Budgeting

Credit cards serve several purposes when it comes to our wallets —and it may surprise you to know how helpful they can be with budgeting. Many credit cards have built-in features to make it easier than ever to track all your expenses and manage your card in one place.

Credit card usage can certainly lead to overspending or purchasing items we truly can’t afford. However, when used correctly, credit cards offer benefits such as time-saving tools for budgeting. Here’s a closer look at the numerous advantages your credit card offers.

1. Track spending

One of the most helpful aspects of using a credit card for budgeting is the ability to track spending. Every transaction is available on your statement, from quick grocery store runs to travel and business purchases. Use this to your advantage for budgeting by tracking your spending without additional imports or effort required on your part. And don’t forget, this also tracks the spending of anyone who uses your card.

Many credit cards have features where it categorizes your spending automatically. This allows you to see where you’re spending the most. You are able to make adjustments to your habits based on what your goals are, and it’s easier to do so with the built-in tracking feature. Not to mention you save time by not having to dig around for all of your receipts!

2. Set limits

If you’ve established a budget, then use your credit card to help you stay within your overall spending limit. And since you have the ability to simply access your information on your card, you can always stay up-to-date with your current spending level totals. Use a credit card to monitor your transactions and make sure you’re within your designated limit.

For instance, let’s say your monthly budget is $1,500 for groceries, gas, clothing, and eating out. Each week (or how often you choose) you can log on to make sure your overall spending isn’t going above the $1,500 threshold. You can easily track how close you are to your limit by quickly glancing at your total transactions.

3. Use credit cards for cash flow

Obviously credit card balances do not have to be paid instantly. You have 30 days to cover the expense and make a payment. Use this to your advantage and use a credit card to better manage your cash flow. By using a card, you smooth out your expenses over the month. So if you have a major expense pop up but your paycheck is still a few days out, using a credit card gives you a little financial breathing room.

Managing cash flow is challenging enough, especially if your income is irregular or your spending varies throughout the month. The credit card gives you a 30-day window to make payments instead of the instant payment required when using a debit card, cash, or paper check.

4. Pay off your balance as frequently as possible

The downside to using a credit card is paying interest on a purchase. You can avoid this extra charge altogether by paying your balance as frequently as possible. While many consumers assume paying one large lump sum when the payment is due is the only option, the reality is you are allowed to make payments as often as you like. 

If you’re using a credit card to stay within your budget and track all expenses, you can pay weekly, bi-weekly, or frequently and avoid paying interest. Not only does this habit keep you from paying interest on your purchases, it also keeps you accountable to your budget and spending limits.

5. Use accounts locks and freezes as necessary

Using an account freeze or account lock feature may seem more like a step you take when you suspect identity fraud, but it’s another tool for your budget. Credit cards generally allow you to lock or freeze your account as necessary. When you freeze an account, it tells the merchant you don’t want them to authorize any new purchases, cash advances, or balance transfers until you unfreeze. 

Freezing or locking is instant and usually involves a simple selection online. Let’s say you’ve hit your spending limit for the month, but you’re unsure you won’t be tempted to reach for your card to make additional purchases. Freezing it keeps you from using your card, and you’ll only be able to use it again by making an update.

6. Keep a lower credit limit

Another tactic to remove temptation to overspend is to keep a lower credit limit. If your limit is too high right now for your comfort, then ask your credit card company to lower your credit limit. If you need a cap on your monthly spending, then a lower credit limit will assure you don’t overspend.

There are two potential downfalls to this strategy before you decide to ask for a decrease. The first is, if you do go over, most credit card companies charge an over-the-limit fee. This fee is usually around $40. If you aren’t tracking your expenses on a regular (weekly basis) then you may run into this issue more than you think.

Secondly, credit utilization is an important factor in determining your credit score. Credit utilization is the amount of credit available to you versus how much credit you use. The credit score calculation is more favorable to those who have higher credit limits and lower balances. It’s possible requesting a smaller credit limit has a negative impact to your credit, since your credit utilization rate increases.

7. Use one credit card for all purchases

Using one credit card for the majority of your purchases makes it easy to track your expenses. Not only does it show your expenses, but also anyone who’s allowed to make purchases with your credit card. It’s a one-stop shop for viewing all your transactions at once. It also makes for simpler organization and to have all information at your fingertips.

Using one credit card also allows you to take advantage of any rewards programs. Imagine how much cash back or points you can earn if you’re putting your everyday purchases on your card, instead of the occasional transaction. Even with an annual fee, many of the reward credit cards offer major perks if you use them on a regular basis.

8. Use one card per budget category

Or you can try another approach to using your credit cards for budgeting. Instead of using one card for all transactions, it’s possible to use multiple credit cards. With the variety of credit cards available on the market, you can easily have one dedicated credit card per budget category. There are multiple cards with generous rewards systems in place where you earn more for purchases at specific businesses, so this method allows you to take advantage.

The downside to this method is you have to keep track of more than one. If you know organization is not your strong suit, you may find checking the balances and keeping up with numerous expenses across multiple cards is too tedious. But if you do find it works for you, you can maximize reward potential by using a card per category.

9. Set up balance alerts

Another convenience feature most credit cards offer is a balance alert system. You can request to receive an email or text when your balance hits a certain percentage of your credit limit. So if you have a $5,000 credit limit, but your maximum spending budget is $2,500 per month, you can set an alert when you reach the 50% mark — or sooner.

10. Take advantage of installment plans like Splitit

Installment plans, such as Splitit, work hand-in-hand with credit cards and budgeting. Not only does Splitit work with your existing credit line, it allows you to break up your purchases into smaller, more manageable monthly payments. A buy now, pay later installment plan allows you to pick the number of months you need so you can spread out your payments over time. All of this without any additional interest or application fees.

Installment plans are a fantastic tool for budgeting. It allows you the opportunity to make the quality purchase you need but still manage your monthly cash flow. Plus your payments are predictable each month — perfect for budgeting and keeping your spending under control. 

Budgeting takes practice and some methods are easier to use than others. If using a budget and sticking within certain spending limits is part of your overall financial goals, then a credit card is a useful tool to help you achieve this. Using a credit card in a responsible manner helps you in several aspects, from tracking spending and monitoring transactions, to managing your cash flow and taking advantage of rewards. 

Monitoring your transactions with a credit card brings you much-needed awareness to what’s going on in your finances. And no matter which of these tactics you end up using, you’ll be on your way to smarter credit and cash flow management. 

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