Credit card budgeting: How can you create a budget for your overall spending?

If you are a new credit card user, you should ensure that your income is far more than your total bill. It is, incidentally, not uncommon for some credit card users to pile up high bills which are far more than their monthly income. As a result, they could fall into a debt trap. 

So, while a credit card is supposed to streamline their monthly budget, it could – actually – sabotage the same on account of bad planning and irresponsible usage.

So what is the way out? Ideally, one should create a budget for credit card spending. Here we share some useful tips for doing the same.

Key tips to create a budget for credit card spending:

I. List your sources of income: It is advisable to start with your income to make sure your budget remains realistic. If your income varies, use an average or conservative estimate.

II. Analyse past credit card statements: The credit card users are expected to examine their past statements over past few months to identify spending categories and amounts. You can also categorise expenses by including them in common categories such as groceries, entertainment, dining, and gas.

III. Identify essential and non-essential expenses: Divide expenses into different categories such as rent, insurance, and utilities, which should generally not go on credit cards unless for rewards. The second category falls in variable essential expenses such as groceries, gas, and necessary medical expenses that might fluctuate. Then there are non-essentials which include dining out, entertainment, and shopping.

IV. Choose a spending percentage: It is important to decide how much of your income you’re comfortable allocating to credit card spending. You should keep it around 20-30 percent or lower if possible.

V.  Keep credit card utilisation under 30%: You should make sure that you keep credit card utilisation under 30 percent. You should avoid spending if it's close to the 30 percent limit. If the push comes to shove, you can focus on cash spending until the next statement period. This is important to maintain a good credit score. 

VI. Plan for emergencies: You can set aside 5-10 percent of your credit limit for unexpected expenses to avoid using more than intended.

This approach will help you keep your credit card spending within budget limits, thus helping you maximise benefits and minimise debt.