I have been obsessed with personal finance before I even knew that was a thing. My mother says that I have been “watching money” since I was a child. When my brother and I would get a $20 allowance for outings, I would almost always return home with at least $15 while my brother came back with none. As a child too, I saw what role money played in my own family life. If you didn’t have enough of it there could be frustration but you can also use it wisely and find more ways to make more of it.
In elementary school, we covered basic home economics that included lessons about how to write a check, balance a checkbook and understanding higher purchase. Investopedia defines a Higher Purchase as a method of buying goods through making installment payments over time that originated in the united Kingdom. This was my first introduction to the concept of “buying” something when you didn’t have the money to pay for it outright.
College Life and Easy Credit
Fast forward to the point when I left my home, in St. Kitts, after high school and started college in the United States, I signed up for my first credit card shortly after getting on campus. As an immigrant to the United States, no one prepares you for the ease of getting credit in this country. It’s still amazing to me that a recent immigrant, with hardly any money, could get approved for a credit card just by signing some paperwork on a folding table on the campus quad.
This, get into debt instantly card, was a very new concept to me. I had student loans already, and kind of knew the deal with them (or so I thought) but credit cards would take some getting used to. Needless to say, my credit card gave me access to other people’s money, to buy things I could not afford on my own, in just one swipe. And swipe I did.Credit cards funded my shopping trips to Aventura Mall and my frequent travel back home to St. Kitts for Christmas break.
Store cards were another story, as a college student I would always the opportunity to get the store discount by signing up for a new card, and by my third year in college I had at least 5 credit card and store cards from Macy’s, New York & Company and Company, Gap and Old Navy. I remember my college friend, Vanesa, telling me “Girl, why do you have so many credit cards?” and I really didn’t have an answer.
The only upside to my credit card escapades was that I always made sure to pay my credit card bills on time and keep my utilization low and had over interest to the credit card companies. Of course, for this “good” credit use I was rewarded with high and higher balances and at one point one I had combined credit available of more than $30,000. Ridiculous, I know!
The 700 FICO Score Club
Although I was never educated about the “right” way to use credit cards, I always paid off my credit card balances over time, as quickly as I could; avoided late payments; and by the time I completed college, I had a 700+ FICO score and at least 10 credit cards. Even with the excessive number of credit cards I had, I never really thought that this was problematic. After all, I maintained a “good” credit score always paid back the charges I made and never used all the cards at the same time. Even with this good credit score and good credit, and I never used all of them at the same time. and in
The truth is though that my good FICO score and made me think I had more money that I had and my credit limit subconsciously an extension of my budget. So much so, that all throughout college and graduate school, I never really prioritized building an emergency fund. This lack of planning for a rainy day, caught up with me when I completed graduate school and could not find a full-time job for 8 months. My credit cards, in part, became my emergency fund for that period. I was able to make my credit card minimum payments on time and once I got a full-time job, I paid off the remaining balances, kept my stack of credit cards, and continued to spend on credit. This time, though, I prioritized building an emergency fund since I had already experienced how living without a rainy day fund left me without a safety net.
The 800 FICO Score Club
Last year, when my family and I, bought a condo, my credit score hovered around 790 and of course, that served me well when it came to getting the best mortgage rate possible and enabled me to position myself to compare and negotiate with multiple lenders to ensure I got the best mortgage deal possible.
After becoming a
home mortgage owner, keeping track of the new bills that come, like HOA fees, water bills, and renovations was a challenge, first. I had to reorganize the family budget and it did not help that I financed a portion of the renovations on my credit card. That in and of itself was not a terribe financial move, since it was at 0% introductory rate and I had already planned to use relocation reimbursement funds to clear those charges. But what the problem came when I kept adding to the balance without keeping track of my spending and saw my credit card balance creep up by more than $1,000 more than the original renovations costs.
This is when I realized how my unplanned spending, supported by my credit cards was really a problem. I am great with a budget and usually good at sticking to it, except when I use a credit card for an unplanned purchase. More often than not, using my credit card enabled me to spend without asking myself if this was a want (which most of the time it was), where would it fit into my current budget and did I really need it to purchase it right now?
Excellent Credit and Bad Spending Habits
I had to be really honest with myself and admit that the way I was spending on my credit cards was not serving me well. I had been in this cycle before and really did not want to continue with the cycle of the never ending credit card payments. The right way to use credit cards is to use them to make charges that are already accounted for in your budget. I wasn’t doing that and I recognized that I almost always spend more than I planned when I use my credit card. Psychology Today sums up my behavior as a result of the painless nature of spending on credit cards which can result in overspending. Whatever the reason, I committed to put a stop to it, this year.
First, I stopped spending on my credit card and committed to making purchases with the cash in my bank account. Shortly after making that commitment, I really wanted a computer, and in order to live up to my commitment of paying cash, I ended up buying a used one from my brother. #MoneyMasiveMoment
The second thing I did, was close all my store credit cards, that I hardly used, but somehow always found a way to spend on them when i got in the stores. My Macys, Gap, Old Navy, Target cards had to go. I’ve also closed almost all of my other credit cards, except, one for business use, and my first credit card that I haven’t used in many years. I am planning to close my oldest credit card at some point but haven’t decided exactly when, yet.
So far, I have gotten more in tune with my money and glad I became aware of the triggers that kept me
Do you overspend on credit cards?
I am sure there are many of us have made unplanned purchases that we really did not budget for on credits cards. And even if you pay off your credit card debt, you can reflect on whether being conscious of what may be causing you to overspend can be addressed to prevent that behavior. Once you know that you have been overspending on credit cards:
Recognize when you overspend and what causes it.
Commit to changing your habits.
Ask yourself whether the unplanned purchase your are considering is a want and whether you need to buy it right now.
Weigh how your overspending may delay you from reaching other more important financial goals.
Limit your spending to what is in your bank account and your budget.
Even when you implement these practices you may have slip ups, but the key is to commit to changing your behavior so that you can limit overspending and have a better handle on how you use your money when it comes to spending in credit cards.