A recent survey found that 20% of Americans are unaware of whether they have credit card debt. To avoid surprise debt, you can track and manage your credit cards just like you would your checking account.
Learning how to manage a credit card will allow you to keep track of things like your current balance, available credit, due dates and minimum payments so that debt doesn’t sneak up on you. In this article, we’ll walk you through the three steps to managing your credit cards.
The first step in learning how to manage a credit card is to understand how these cards work in the first place. For instance, paying your balance in full every month versus making the minimum payment can have a drastic impact on both your credit report and your personal finances, as you’ll avoid being charged interest.
You should take time to learn the concepts behind common terms, including:
- Available credit or credit limit
- Credit utilization ratio
- Billing cycle
- Due dates
- Minimum payment
- Interest rates
Understanding the basics is essential when managing a credit card.
Once you understand the basics, it’s time to figure out how much you can afford to spend on the card.
Any credit card comes with a line of credit, otherwise known as your credit limit. This is the maximum amount that you can spend on the card before you must begin paying off the balance. But just because this is the max you’re allowed to spend doesn’t mean it’s how much you can afford.
Before you start using a credit card, it’s good to have a complete view of your personal finances. Without budgeting, your spending habits may cause you to charge more to your card than you can pay, eventually causing your lender to charge interest.
A monthly budget will help you know what your expenses are each month and may look something like this:
- Rent: $1,200.
- Groceries: $500.
- Car Payment: $500.
- Gas: $150.
- Savings for an emergency fund: $300.
Subtract your expenses from your monthly net pay. If there is any money remaining, you are free to spend it as you wish. For instance, using the above example your total anticipated expenses for a given month are $2,650. If you earn $3,000 a month after taxes, this means that you have $350 for personal spending.
Let’s say that you use credit cards to pay for groceries, gas and your personal expenses. By adding up those categories in your budget, you know how much you can charge to your credit cards and still expect to pay it off in full. In this scenario, you’d be able to charge up to $1,000 each month.
Paying your credit card balance in full every month allows you to:
- Improve your credit report.
- Avoid interest charges.
- Avoid late payments.
Treating your credit card like a debit card and only spending what you know you can afford is a key step in proper credit card management.
Now that you understand how credit cards work and have a budget in place, it’s time to decide how you’re going to manage your credit cards.
The method or combination of methods that you choose will depend on your specific goals or areas where you feel you need help.
Collecting receipts might be a good option if you tend to spend beyond your budget. It’s very easy to swipe a card when making a purchase and then forget about it. Those charges can rack up quickly. By hanging onto your receipts each month and keeping a running total, you’ll have a tangible reminder of the money you’re spending.
Even if you’re able to view recent transactions through your credit card’s website or app, sometimes there is a delay and charges don’t post right away. For instance, if you go out to eat and tip your waiter on your credit card, you may not see the total amount posted online for a few days. By collecting receipts, you will always know exactly what you’ve spent in real time.
However, there are some downsides to this method. If you use your credit card for online purchases, you will need to print invoices to have a hard copy, which might be challenging if you don’t have a printer at home. An alternative would be saving a PDF copy of the online receipt. It’s easy to misplace receipts, though, so either of these options requires a bit of organization.
Finally, this method has its limitations in terms of management because it only works for balancing your credit card and tracking your current balance. It does not help with things like tracking your due date.
Managing your credit card with a spreadsheet, like Excel or Google Sheets, might be right for you if you’re juggling multiple credit cards or you want to customize the information you’re tracking. You can make a spreadsheet as simple or as complex as you need.
You might decide to track due dates, credit limits or balances, interest rates and credit card perks — like cash back or travel points — for each card you own. Having this information in one spreadsheet will give you a bird’s eye view of all your cards at once. Plus, you can use formulas and functions within a spreadsheet to automatically make calculations.
For example, you might want a spreadsheet with all your due dates where you can keep track of when you’ve paid a card each month, so one of your payments doesn’t slip under the radar. Or perhaps each of your cards offers different rewards, and you want to maximize them by using the right card for the right purchases, or you want to keep track of any cash back you earn so you can include that bonus money in your budget.
While a document like this can be very helpful and serve as a “one-stop shop” for your personal finances, it does require a significant amount of management. Every time something changes, like your balance or interest rate, you’ll need to go in and update your sheet. This could quickly become tedious and time-consuming.
Additionally, there may be a learning curve if you’re not familiar with using formulas within spreadsheets.
Apps are the most convenient way to manage credit cards, especially with our modern lifestyle. Credit card companies make it easy for you to manage a credit card on the go. Pretty much every credit card issuer has a mobile application that you can use to pay your bill, set up autopay, view your payment history, monitor your balance and even check your credit score.
You can use the app to set up notifications as well. Your credit card issuer will typically send you either text or email notifications to let you know when you spend over a certain amount or have a due date approaching. Notifications for other events may be available as well.
While using your credit card’s app is a great option, it might become difficult to manage if you have multiple credit cards. This is where a credit card management app like Tally can help. Tally automatically pays your cards by their due dates and shows you your total balances across all cards. Allowing technology to work for you makes it significantly easier to manage your credit cards.
There is a stigma surrounding credit cards because of their high rates of interest and the debt associated with them. Though these concerns are valid, they are avoidable. When used properly, a credit card is a tool that you can use to your advantage. Knowing how to manage a credit card can keep you out of debt while allowing you to take advantage of the perks these cards have to offer.
A good first step is to understand how a credit card works. Then you can plan how your credit card fits into your lifestyle and spending habits. Once you have these basics down, you can choose the management solution that is best for you. Perhaps you like hard copies and want to use receipts. Or maybe you’d like to build a spreadsheet to monitor your finances.
But one of the most convenient management options is an app. A credit card app like Tally works for you, allowing you to manage multiple cards while also ensuring that you don’t miss payments. Tally streamlines the credit card management process, making it easier for you to avoid debt and stay on budget.