If you are a new credit card user, make sure your income is much higher than your total bill. It is not unusual for some credit card users to accumulate large bills that far exceed their monthly income. As a result, they could find themselves in a debt trap.
So while a credit card is intended to streamline their monthly budget, it could – in fact – sabotage this due to poor planning and irresponsible use.
So what’s the way out? Ideally, one should create a budget for credit card expenses. Here we share some useful tips to do the same.
Important Tips to Create a Budget for Credit Card Spending:
I. List your sources of income: To ensure that your budget remains realistic, it is advisable to start with your income. If your income varies, use an average or conservative estimate.
II. Analyze previous credit card statements: Credit card users are expected to examine their previous statements from the past few months to identify spending categories and amounts. You can also categorize expenses by including them in general categories, such as groceries, entertainment, dining, and gasoline.
III. Identify essential and non-essential expenses: Divide expenses into different categories, such as rent, insurance and utilities, which generally should not be placed on credit cards unless for rewards. The second category includes variable essential expenses such as groceries, gasoline and necessary medical costs that can fluctuate. Then there are the non-essentials, such as eating out, entertainment and shopping.
IV. Choose a spending percentage: It is important to decide how much of your income you would like to spend on credit card expenses. You should keep it around 20-30 percent or lower if possible.
V. Keep cchange card usage below 30%: Keep credit card usage below 30 percent. You should avoid expenses if they are close to the 30 percent limit. When it comes down to it, you can focus on your out-of-pocket expenses until the next billing period. This is important to maintain a good credit score.
VI. Emergency plan: You can set aside 5-10 percent of your credit limit for unexpected expenses to avoid using more than intended.
This approach helps you keep your credit card spending within budget limits, allowing you to maximize benefits and minimize debt.
