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I Want to Start Using Credit But I’m Terrified I’ll Overspend – Help!

May 1, 2014
Credit Cards
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By now you’ve probably heard that using a credit card is a great way to establish a positive credit history and earn cool rewards. But there might be someone in your life warning you to stay away from credit cards because there’s the risk of overspending.

If you want to start using a credit card, but are scared you’ll lose control, take a look at the information below. It’s easier than you think to keep your spending in check.

Why credit cards makes sense for most of us

If you’ve decided to conquer your fear of credit cards and start using them, you’ve probably made a good decision.

The main reason that using a credit card is a smart idea: It helps build good credit. Using plastic properly – paying your bill on time and in full – shows the credit bureaus that you’re a responsible borrower. This will reflect positively on your credit report, which, in turn, will lead to a high credit score. A solid credit score will make getting a loan easier in the future.

Another reason that using a credit card can be a good move is that you’ll be able to rack up points, miles, or cash back on spending you’re already doing. Choosing a good rewards credit card can really pay off if you’re using it responsibly.

Finally, shopping with a credit card usually provides protections not available with cash and debit. Price assurance, extended warranty and zero fraud liability are common perks that come with most credit cards.

Tips for overcoming credit phobia

Even if you intellectually understand that using a credit card is beneficial, you might still have emotional concerns. After all, there are so many horror stories out there about people getting into credit card trouble.

But the good news is that you can take steps to get more confident about shopping with credit.

  • Check your mindset – One reasons people overspend with credit cards is they have the wrong mindset. Internalize the idea that credit cards provide short-term loans. When you swipe your card, you’re borrowing money – and you’ll have to pay it back. Plastic isn’t free money or additional income.
  • Get smart – Ignorance breeds fear, so the best way to overcome a fear of credit cards is to become more educated about them. This is a good resource to get you started.
  • Make a budget – The best way to keep your spending under control is to make a plan for how you’ll use your funds. Be realistic about your budget, then stick to it.
  • Track your spending – After setting up a budget, keep tabs on how you’re doing by tracking your spending. You can use online banking or any other method you’re comfortable with, just be sure you’re actually doing it.
  • Sign up for alerts – Most credit card issuers give you the option to set up text or email alerts to be reminded of billing due dates, your current balance, etc. Even though you’re keeping track on your own, setting up an alert adds an extra layer of protection against overspending.

Next steps

Once you’ve put some systems in place to ease your fears of overspending, it’s time to take the next steps:

  • Pick the right card – Choosing a card that’s right for you is a complex process. Luckily, the Nerds have some tools to make it easier.

If you’re a student, see this resource

For help choosing the best cash-back card, click here

If you’re a frequent traveler, this tool is for you

  • Start small – It’s easy to get wrapped up in the glamor of rewards cards and bite off more than you can chew. Invest some time in picking one good card to get started with, then stick with it before adding more plastic to your repertoire.
  • Reflect on your progress – Give yourself a few months to get acclimated to using a credit card, then spend a little bit of time evaluating how you did. Did you keep your spending in check? Pay your bills on time and in full? If so, keep doing what you’re doing. If not, it’s time to re-strategize.
  • Pull back if necessary – If you come to the realization that you’ve mishandled your credit card, don’t be afraid to pull back. If you found yourself overspending, take a break from your card and switch to cash while you figure out what went wrong.

The takeaway: It’s easy to be intimidated by credit cards, but with the right tools and attitude you’ll be able to use them successfully.

Credit card fear image via Shutterstock