Have you come across a friend or a colleague who cannot keep a check on monthly credit card expenses and struggles to come to terms with the size of the card bill? Vows to keep expenses under check from next month, but the story keeps repeating. I am sure you have. You wonder why. They earn well. No visible cashflow pressure. Still, they somehow end up spending too much.
You might argue this is not a problem if they can pay the card bills in full. That’s a fair thought but there is still a problem. Every rupee spent is one less rupee saved or invested. Irresponsible credit behaviour can compromise your long-term investments and you may come to repent this later.
What can such borrowers do?
#1 Avoid Using a Credit Card
Yes, it sounds harsh but if you are unable to assign any reasons for high credit card expenses, you should avoid using credit cards.
If you do not use a credit card and make all your payments in cash or through UPI or through a debit card, you have an automatic check on your expenses. You can’t spend more than what you have in your bank account. Moreover, whenever your bank account is debited, you get a message with the balance in your bank account. This information itself keeps you disciplined.
You get a similar message with credit cards too, but the credit card SMS “Available limit is Rs 2,78,621” is nowhere near as powerful as the debit card SMS “Available balance is Rs 34,833”. The first message says that you can still spend Rs 2.78 lacs more. The second one tells that you can’t spend more than 34,833.
#2 Track How Much You Have Spent During the Month on Your Credit Cards
If you knew you have already spent 85,000 this month on your credit cards, you would perhaps go slow on expenses for the remainder of the month. However, with most of us, the problem is that we don’t realize how much we have spent on our cards during the month. SMSs for credit card transactions are not really that useful. While you can get some sense of how much you have spent in this cycle by subtracting “Available Balance” from the “Credit Limit”, there is a problem if you have bought any items on EMI.
Let’s say your credit card limit is Rs 3.5 lacs. And the available limit is Rs 2.78 lacs.
This means you have spent Rs 3.5 lacs – Rs 2.78 lacs = Rs 72,000 in this month.
Hence, if you know your credit card limit, you can quickly find the monthly expenditure by looking at the available limit. Every credit card transaction SMS has “Available limit”.
The problem comes when you have converted your card expenses into EMIs. In that case, while you must pay monthly installments, the bank blocks your card limit to the extent of current loan outstanding. Continuing with the above example, you bought a smart phone for 60K on credit card EMI 2 months back and the current outstanding on that loan is Rs 50,000.
In that case, Available limit = Credit card Limit – Outstanding loan amount – Monthly expenditure
Hence, your monthly expenditure is only 22,000 (3.5 lacs – 50K – 2.78 lacs).
If you don’t remember the outstanding loan amount, the Available limit becomes less useful. How to track then?
You can try one of various expense tracker apps.
I do not use any app. I prefer and suggest a crude way of tracking expenses, even though it requires some effort. Every time you use your credit card, enter the transaction amount in a Google sheet. You can also label the expenses (Grocery, travel, dining out, clothes etc.) for analyzing later. It is important that the sheet is on cloud so that you can update the sheet real time. Remember, the Google sheet is only as useful as the data you enter in it. If you do not enter data diligently, this exercise will not be useful.
You just have to sum up all the expenses to know how much you have spent.
#3 Spend Only on One Credit Card
At times, when you use multiple credit cards, it becomes really difficult to keep track of how much you have spent during the month. Later, at the end of the month, when you add up the numbers across credit cards, you get a shock.
If you have a similar issue, suggest you use just one credit card. Do NOT spread your expenses over multiple credit cards.
The rest of the cards can just be for the backup. Yes, it is possible that you may lose out on cashbacks/rewards if you limit your expenses to just one credit card. However, I think you will be better off over the long term.
#4 Set Credit Limit and Transaction Limits
The banks set a credit limit for your card. There is also a provision where you can set your credit limit lower.
Let’s say the credit limit provided by the bank is Rs 2 lacs.
You log into the bank website or the mobile app and set the credit limit lower at Rs 50,000. If the limit is Rs 50,000, you cannot spend more than Rs 50,000 on the card in a billing cycle.
Note that this is not a one-time change. You can increase/decrease the credit limit whenever you want. Of course, you cannot set the credit limit higher than the one provided by the bank.
You can also set per-transaction or daily limits for various types of transactions (physical, online, NFC, cash withdrawal) as well. The artificial limits can nudge you towards responsible credit behaviour.
By setting up a lower credit limit, the “available limit” also gives you a firmer sense of where you stand in terms of monthly expenses. In my opinion, “Your available limit is Rs 18,250” sends a more powerful message than “Your available limit is Rs 1.95 lacs”. Yes, the problem due to credit card EMIs still remains but it does give you an idea.
Credit is a powerful weapon only if used responsibly. How do you keep a check on your monthly credit card expenses? What are your hacks to control your credit card expenses? Do let me know in the comments section.