Benefits of setting credit card spending limits for yourself
Find the right balance between spending and budgeting by setting yourself a credit card spending limit.
May 24, 2022 3 min read
It’s fun to think about a life with no limits, but in the real world a limit can be a good thing. It can help us stay safely within our means, like a speed limit. The same goes for deciding to set a limit for yourself on your credit card spending. Bottom line, it’s all about a healthy level of control.
You might be wondering, don’t credit cards already come with a limit? Yes, but that’s set by your lender and represents the maximum amount you can charge on the account. Going a step beyond to set your own spending limit as part of your personal budget could result in all sorts of benefits, from budgeting and saving to building healthier credit scores.
Benefits of spending limits
Defining your personal spending limit can do more than help keep you within budget. Here are some other things it could help you do:
Learn to think outside the box
You might have heard the saying “Necessity is the mother of invention.” Basically, it means that when you face constraints, you can be more open to finding new ways of doing things.
But how does this translate to your credit card spending limit? Let’s say you’ve been ordering takeout a lot recently. With a new self-imposed limit, you might be more motivated to pay with redeemed credit card rewards or do more home cooking.
Keep your credit utilization low
Your credit utilization ratio is a measure of how much of your total available revolving credit you’re using. Credit-scoring models can be an important factor in determining your credit scores. According to the Consumer Financial Protection Bureau (CFPB), it’s best if you can keep your credit utilization below 30%. Your self-imposed spending limit could help you keep your credit utilization ratio low. And that could be good for your credit scores.
According to the CFPB, research shows that people might spend more when using a credit card than when using cash. So having a spending limit could help you stay within your means. And that could save you money to put toward your other financial goals. Using your credit card’s mobile app or a budgeting tool can help you keep an eye on things.
Stay in control and set up alerts
With today’s apps, online access, and mobile banking, tracking credit card spending is easier than ever. Depending on your issuer, some tools can alert you when your balance gets high or even when purchases are made.
If you’re a Capital One cardholder, you can keep track of your spending in real time with instant purchase notifications. Plus, you can set up alerts to notify you about your balance and recurring payments. All you need to do is add the Capital One Mobile app to your phone or sign in to your account online.*
Understand your habits
Credit cards come with some great benefits, from rewards for shopping to protection from fraud. And credit card issuers’ digital tools can make it simpler than ever to manage your money anytime, anywhere.
However you end up managing your spending, learning some fundamental rules around budgeting and goal setting can help you understand your habits. And remember, you’ll need to use your credit card responsibly to enjoy all the benefits it offers.