Credit card debt in the UK has reached a staggering £70.1 billion as of April 2024, a 7% increase from the previous year. With the average household now carrying £2,471 in debt, it’s clear that many Brits are struggling to keep their spending in check.
Below, we share five practical tips to help you manage your credit card use effectively, ensuring you stay within your limits and avoid the pitfalls of mounting debt.
Set a Limit
The first step is to establish a clear, realistic monthly limit. This should be based on your income, essential expenses, and financial goals.
A good rule of thumb is to keep your expenses below 30% of your monthly take-home pay. For instance, if you earn £2,500 after tax, aim to keep your credit card charges under £750 per month.
Track Your Expenses
Many people underestimate how quickly small purchases can add up, so keeping a close eye on your spending is crucial. Use a credit card that lets you track your expenses and review your transactions regularly – ideally weekly, but at least monthly.
Categorise your purchases to identify areas that might be unnecessary. Are those daily coffees or frequent takeaways eating into your budget more than you realised? This level of scrutiny can be eye-opening and often leads to more mindful habits.
Pay Your Balance in Full Each Month
One of the most effective ways to manage credit card usage is to commit to paying off your balance in full each month. This approach serves two purposes: it keeps you debt-free and forces you to spend only what you can afford to repay. There are also apps available that will let you make repayments at any point in the month and show your updated balance within minutes, which can help you stay on top of things.
If you’re currently carrying a balance, make a plan to pay it off as quickly as possible. Consider using the snowball or avalanche methods to clear your debt efficiently. The snowball method has you pay off the smallest balance first to keep you motivated with easy wins, while the avalanche tackles the highest interest rate first, helping you save more money over the long run.
Use Alerts and Reminders
Take advantage of the technology available on your card issuer’s app or online platform to help you stay on track. Most credit card providers offer customisable alerts that can notify you when:
- You’re approaching your self-imposed limit
- A payment is due
- Unusual activity occurs on your account
You might also be able to create calendar reminders for payment due dates to avoid late fees and potential damage to your credit score.
Avoid Impulse Purchases
Impulse buying is often the culprit behind overspending. To curb this habit, institute a 24-hour rule for non-essential purchases over a certain amount, say £50. This cooling-off period allows you to evaluate whether the purchase is truly necessary and fits within your budget.
Another effective strategy is to remove saved credit card information from your favourite online shopping sites. The extra step of manually entering your card details can provide a moment of pause, potentially stopping an unnecessary purchase.
Your Money, Your Rules
The key to mastering credit usage is a well-defined strategy for control. By implementing the tactics we’ve outlined above, you can make concrete steps towards managing your credit card spending and avoiding the debt trap. But beyond this immediate focus, these same principles will help you pave the way to a more secure financial future.