Managing your money properly is extremely important if you want to avoid debt and look forward to a stress-free financial future. Most people don’t associate credit cards with financial responsibility, as they have heard too many scare stories about debt and high-interest payments. However, a credit card can actually be an extremely effective budget manager if you learn how to use it correctly, and this is something more and more people are now choosing to do.
Here’s how to use credit cards to manage your finances and take the stress out of budgeting.
1. Only use one credit card
You might think having three or four cards makes sense, as it gives you more spending power. However, this is how many people get into debt, as they become confused about how much they have spent, and then can’t afford the repayments.
You can rectify this by only using one credit card for all your expenditure. This makes it easy to stay on top of your spending, as you only have one bill to pay each month. In addition, if you choose a card which offers rewards for spending, you can maximise these rewards by using that one card for everything.
2. Categorise your expenditure
Choose a credit card which enables you to categorise your expenses – for example, groceries, transport, clothing and other regular expenses. This will allow you to see which areas you are spending the most money on, and identify where you could potentially make savings.
3. Track your expenses against your budget
Always keep your monthly budget in mind when spending money on your credit card. A major advantage of today’s cards is that you do not have to wait for your monthly statement – you can keep track of your account digitally, using your smartphone. You should check your balance at least once a week, as this helps you stay in control of your spending throughout the month.
4. Set up spending limits and alerts
Another advantage of modern super-smart credit cards is that they enable you to tailor your account settings to suit your individual needs. For example, you can preset a monthly spending limit of your choosing. If you want to manage your money well, your spending limit should be lower than your total monthly budget.
You can also set up balance alerts, so your credit card company when you have spent, say 50 or 75 percent of your monthly spending limit. This helps you to adjust your spending, so you always stay within your budget.
5. Pay off your credit card balance regularly
If you want your credit card to work for you rather than against you, you must pay off your balance every month, without fail. This ensures that you are building up credit, which improves your financial reputation and unlocks greater spending power in the future. It also helps you to avoid large interest repayments, so that you can stay out of debt.
However, if you are paid every week or two weeks, rather than monthly, it can be more difficult to budget. You can solve this problem by paying off your credit card balance more frequently. By taking care of the bill as soon as you get paid, you can keep your credit rating high, remain debt-free, and have more control over your spending.
More advice about being a better budget manager
If you can make your credit card work for you, it can be a vital tool in avoiding debt and keeping your finances on track. For more advice about how to use credit cards and many other aspects of financial management, please contact the team here at MyFi. Our online budgeting tool is just one of the many features you can access by becoming a member. Enquire today!