Spending on a credit card

[Anonymous]

I have been using cash and debit my entire life, and 19 months ago my son convinced me to start using credit cards to work on my score. I have always gone out of my way to pay every bill no matter what, (the only bills I have ever failed to pay are medical) and I never had a problem with over spending. (Obviously there was no way to over spend since I only had what was in my bank accounts.)

I'm not saying I have a problem with over spending right now, (I am questioning if I do) however I wouldn't really know if I do since I will do WHAT EVER I have to do in order to pay my bills (aside from medical). So I've had my newest cards 10 months and I have spent over 20k on it..... that number makes zero sense to me. There is no way I'd spend that without a credit card. The problem is I don't know how to tell if I'm over spending. On one hand I could never spend that much without a credit card in 10 months (so I'd say I'm over spending). On the other hand I am paying in full every month without issue, I had a surprise medical expense that wad 2.3 so currently paying that off. Which I have almost finished doing. (So I'd say I'm not over spending in that case) <THE problem="" with="" this="" is="" yes="" i=""></THE>

[Anonymous]

Apparently it cut me off at the end (I'm on a phone as I don't have batteries in my house right now and the store isn't open yet, so my keyboard doesn't work.) What it wad supposed to say at the end is "The problem with this is yes I'm paying in full monthly, however I will do what ever I need to do in order to pay my bills. Also considering I wouldn't be able top spend that amount without the credit cards is something top really think about.

So how would I know if I'm over spending or not, I am not sure either way currently if I am, just a thought that popped into my head maybe a month ago.

[chiefone4u]

Would you clarify if you have spent $20k or owe $20k, as this is a major clue to form opinions.

Most everyone has their own definition of over spending.

In my opinion:
If you are unable to put money in savings.
Unable to pay more than the minimum payments.
Balance on credit cards go up monthly instead of down.

Are all signs you're likely over spending.

If you are able to pay all credit cards to zero every month and cover all other expenses (housing, utilities & food) and still able to add to your savings; you are probably not over spending.

[iced]

---

@Anonymous wrote:
Apparently it cut me off at the end (I'm on a phone as I don't have batteries in my house right now and the store isn't open yet, so my keyboard doesn't work.) What it wad supposed to say at the end is "The problem with this is yes I'm paying in full monthly, however I will do what ever I need to do in order to pay my bills. Also considering I wouldn't be able top spend that amount without the credit cards is something top really think about.

So how would I know if I'm over spending or not, I am not sure either way currently if I am, just a thought that popped into my head maybe a month ago.

---

Spending (and budgeting) is a number; how those numbers are spent really is irrelevant. If you have $5,000 per month in your budget, whether you spend $4,500 on cards and $500 in cash or $4,998 in cash and $2 on a card makes no difference. The problems begin when someone forgets this and starts using cards as if they were extensions to their cash reserves.

If you spend less when you only use cash or debit, the underlying issue is that there's something about the debit/cash that's restraining you psychologically that isn't restraining you with cards. For instance, if someone looks at a credit card with a $10,000 limit and thinks that means they can spend $10,000, they're already starting to set themselves up for failure. Again, they're not cash; they're merely a means to an end. Even thinking of credit cards as a short-term loan is dangerous for people who don't have budgeting discipline. For every person who leverages a 0% period to glean a few extra dollars in interest out of savings, there's 50 who slip and end up paying much more in interest to the cards because they can't pay the balance off in time.

For me, regardless of the limit on a particular card, I look at them all as no pre-set limit charge cards. I ensure that I have the limits to cover the peaks and valleys of my monthly expenses, but I never think of them as available cash. Instead, I think of them as shields around my debit and cash in that I'm giving the money to Chase or American Express and they're then giving my money to the merchant while assuming the risk for a dispute or fraudulent charge. This approach gets me into the mindset that I'm still only spending money that I already have, but merely doing them through the convenience of a credit card.

[Anonymous]

Like BrokenCredit, my expenses increased when I had a cc because for me it is easy to fall into the thinking that my CL is more money I can spend rather than what it actually is. Thankfully I never went overboard with that.

I think overspending can be thought of as spending more than what you're bringing in and being unable to pay off your bills.

[Anonymous]

Great responses by Chief and Iced.

I just love the simple rules that Chief gave you including his emphasis on savings, which is something you do not mention in your original post.  Paying cards in full each month is the least you should do.  To dovetail on what Chief said, unless you are doing all of the following, you are spending too much:

*  Paying all cards in full each month

*  Paying all other obligations each month (loan payments)

*  If you have high-interest loans, making extra payments on those to pay those balances down.

*  Saving at least 20% of your gross annually. 

Two caveats on that last item ("savings"):

* Some people are in colossal debt or have a loved one who has medical needs (mom with cancer, autistic son, etc.)  There you may be able to save only a tiny bit each month since everything else has to go toward getting yourself out of debt or caring for loved ones.  If the problem is debt, you should have a plan on how to get out of debt and have scrutinized your past to discern how you got into debt in the first place. 

        Another obvious exception might be a person who quite unexpectedly lost his job or perhaps someone who is in his early 20s and is just starting out -- there the person may simply be unable to save more than a tiny bit (though every dollar saved put into a Roth by a 23 year old will be gold when he retires, so he should certainly try to save).

* The "20%" figure is not set in stone.  For some people 15% might be enough to have plenty of emergency money and plenty of money for retirement.  For people like Iced and myself, we prefer to be saving more than 20%.  I save around 30% and Iced may save more.

[CreditInspired]

---

@iced wrote:

---

@Anonymous wrote:
Apparently it cut me off at the end (I'm on a phone as I don't have batteries in my house right now and the store isn't open yet, so my keyboard doesn't work.) What it wad supposed to say at the end is "The problem with this is yes I'm paying in full monthly, however I will do what ever I need to do in order to pay my bills. Also considering I wouldn't be able top spend that amount without the credit cards is something top really think about.

So how would I know if I'm over spending or not, I am not sure either way currently if I am, just a thought that popped into my head maybe a month ago.

---

Spending (and budgeting) is a number; how those numbers are spent really is irrelevant. If you have $5,000 per month in your budget, whether you spend $4,500 on cards and $500 in cash or $4,998 in cash and $2 on a card makes no difference. The problems begin when someone forgets this and starts using cards as if they were extensions to their cash reserves.

If you spend less when you only use cash or debit, the underlying issue is that there's something about the debit/cash that's restraining you psychologically that isn't restraining you with cards. For instance, if someone looks at a credit card with a $10,000 limit and thinks that means they can spend $10,000, they're already starting to set themselves up for failure. Again, they're not cash; they're merely a means to an end. Even thinking of credit cards as a short-term loan is dangerous for people who don't have budgeting discipline. For every person who leverages a 0% period to glean a few extra dollars in interest out of savings, there's 50 who slip and end up paying much more in interest to the cards because they can't pay the balance off in time.

For me, regardless of the limit on a particular card, I look at them all as no pre-set limit charge cards. I ensure that I have the limits to cover the peaks and valleys of my monthly expenses, but I never think of them as available cash. Instead, I think of them as shields around my debit and cash in that I'm giving the money to Chase or American Express and they're then giving my money to the merchant while assuming the risk for a dispute or fraudulent charge. This approach gets me into the mindset that I'm still only spending money that I already have, but merely doing them through the convenience of a credit card.

---

+100

Can @iced get an Amen!

[Anonymous]

And yes, for most people, the use of credit cards does increase their spending.  That's been the subject of study by psychologists and people in the fairly new field of neuroeconomics:

https://en.wikipedia.org/wiki/Neuroeconomics

When I say "increase their spending" I mean compared with having to pull cash out your wallet each time.  Seeing your beloved bills disappear is a source of pain that is hidden for most of us by the use of cards.  That source of pain induces people to spend less -- to pay only the very minimum that they need.  The order in which the pain disappears correlates with buying stuff we don't need (restaurants, whatever).  Thus:

Paying with cash (least likely)

Paying with debit cards (some over spending since there is some masking of the money vanishing)

Paying with credit cards (the most likely)

Obviously this is just a statistical observation: some individuals might be exceptions.  Yes, Bob might have three credit cards in his wallet and he is never even once bought something that he wouldn't have if he paid cash -- but there are also people who can smoke a pack a day and live a healthy life till they are 90.  That's possible but very rare, and belongs more the category of the Exception Proves The Rule.

All that said, there are a lot of benefits to the use of cards.  If you can become disciplined in their use, the convenience of them and the rewards you can get will make up for the fact that you probably spend more than you would if you spent only cash. 

[CreditInspired]

---

@Anonymous wrote:
I have been using cash and debit my entire life, and 19 months ago my son convinced me to start using credit cards to work on my score. I have always gone out of my way to pay every bill no matter what, (the only bills I have ever failed to pay are medical) and I never had a problem with over spending. (Obviously there was no way to over spend since I only had what was in my bank accounts.)

I'm not saying I have a problem with over spending right now, (I am questioning if I do) however I wouldn't really know if I do since I will do WHAT EVER I have to do in order to pay my bills (aside from medical). So I've had my newest cards 10 months and I have spent over 20k on it..... that number makes zero sense to me. There is no way I'd spend that without a credit card. The problem is I don't know how to tell if I'm over spending. On one hand I could never spend that much without a credit card in 10 months (so I'd say I'm over spending). On the other hand I am paying in full every month without issue, I had a surprise medical expense that wad 2.3 so currently paying that off. Which I have almost finished doing. (So I'd say I'm not over spending in that case) <THE problem="" with="" this="" is="" yes="" i=""></THE>

---

So here’s my face when I read, “so I’ve had my cards 10 months and I’ve spent $20K 😳. 

So, are you actually paying the cards in full each month? If you can afford to do this, you’re okay. But if not, there may be a problem. 

You wondered how come with a debit card you have no problem with overspending but with a CC you go hog wild. I don’t know the answer to your specific problem, but I’ll tell you about a friend of mine who spends like she’s shaking the dollar bills from the tree outside her house. 

Her income is $175K. Two years ago she bought a brand new house. I helped her with getting 0% APR CCs. Today, she is struggling. She used the cards as if they were free money. Custom CA closets; built-in double bookshelves; new furniture for BR & LR; chandeliers and sconces for MBR (yes chandeliers); custom drapes. She turned her basement into a studio apt that took months to rent out. I could go on and on. Then she took out 2 consolidation  loans to pay off the CCs. You guessed it. Now she’s running the CCs back up. Yes, this stuff adds up mighty quickly. 

Now back to you. One knows they’re overspending if they can’t PIF and most definitely one wouldn’t go into a store with a debit card and buy a couch and chair this month, and a BR set next month, and a grill and lawn furniture the following month. If you’re saying you spent $20K in 10 months I’m figuring you must be buying big-ticket items.

So, if that’s the case, you have to create a budget. I use Excel. After you deduct all your monthly living expenses (mortgage/rent, utilities, cable, phone, groceries) from your monthly net pay, this is what you have over to save, entertain, spend on other stuff, etc.

My budget is planned for the entire year and broken up by payday. I know exactly where every penny of my money go. Yes, there are times, I splurge, but I play around with my Excel chart, change figures around to ensure that I’m always in charge of my money and that my money is not in charge of me. 

The lesson here. Even when I use my CCs (for the rewards), I treat it as if it’s a debit card. 

And you can too. GL2U. 

[Anonymous]

---

@chiefone4u wrote:
Would you clarify if you have spent $20k or owe $20k, as this is a major clue to form opinions.

Most everyone has their own definition of over spending.

In my opinion:
If you are unable to put money in savings.
Unable to pay more than the minimum payments.
Balance on credit cards go up monthly instead of down.

Are all signs you're likely over spending.

If you are able to pay all credit cards to zero every month and cover all other expenses (housing, utilities & food) and still able to add to your savings; you are probably not over spending.

---

I did not spend 20k all at once, it was 20k over the course of 10 months. (which is a lot for me). 1) I am putting money into savings, 2) I pay way more then the minimum payment. In fact I pay if off monthly when I don't have some sort of emergency. As I mentioned I had a 2300 medical bill and that is almost paid off. Will be paid off in full in the 2 to 3 months. 3) The balance on my cards definitely go down not up.