Credit cards can be a lot less risky when used to manage your finances

Budgeting is all about avoiding spending money that you don’t have, but when you take out a credit card, you spend money you don’t have. So how can the two co-exist? Although the words ‘credit card’ and ‘budget’ are two words rarely used in the same sentence, there are ways wherein credit cards can be used to elevate your budgeting skills and even help improve them. However, keep in mind that credit cards can still pose serious threat to your financial plans if you use them without a budget.

However, the go-to logic to avoiding the pitfalls of credit is this – consolidate debt at a lower interest rate using a balance transfer credit card or a personal loan, create a plan to pay off all debts as soon as possible and stop using credit altogether. Realistically, not everyone needs to resort to such drastic measures.

A budget starts with how much you have to spend in a given month and even with a credit card, that number should come from your monthly income – not the thousands of dirhams in credit limit that’s given.

The goal should be to use as little of your credit limit as possible, not as much of the limit. That will help you stay on track with your budget and even help raise your credit score.

Global surveys have shown that people spend more when they’re using a credit card versus cash. That’s why planners add that it’s a good idea to designate your credit card for fixed costs only.

And if let’s say your goal is to earn rewards, then in that case, you may want to consider different credit cards that align well with the categories you spend the most in.

When you’ re creating a budget for the first time, you need to first calculate your actual monthly expenses. Here’s where your credit card statement comes in handy. Once all of your expenses are listed, you then compare the final total to your actual income. If it’s time to create new budget limits that you can live with, one way to start whittling things down is to take your average spending in each unfixed category and cut it down by 20 per cent next month.

Once your new budget is ready, start the new month with new budget expectations, which is also where your credit card comes in. Instead of using cash or debit, you’ll start putting all of your purchases on your credit card. Then, at least once per week, you can check where you stand with your new budget.