Reduce Your Credit Limits to Manage Your Spending

By Silicon Valley Blogger. Last updated 4 January 2012. 13 comments
Photo: Andrew Chia

How much credit do you have? By this, I mean how much available credit could you go out and spend today if you really wanted to max all your credit cards to the hilt?

I’m actually surprised by the gradual increase in my credit limits, and by just how high some of them have gone. I try to spend no more than a few hundred on my credit cards at any time, and always make it a habit to wipe out my balances on a monthly basis. Still, my credit limits are maintained at around $6,000 per card. So what's the concern? Well, with terms improving for many top credit card rewards programs, it's not surprising how tempting it has become to start piling on the credit...or worse, the debt.

All this makes me reflect on the importance of being comfortable with the amount of credit I have. Now if you have credit cards yourself, take a look at them now and review the credit limits you have on them. If you have more than one card in your possession, you could very well find that you have credit lines worth five figures at your disposal. And if you are tempted to spend more than you can afford, then you could end up accumulating credit card debt over time and struggling with financial problems.

One simple way to avoid debt is to remove the temptation. You don't need to cut up and cancel all your credit cards. But you can ask your credit card issuers to lower your credit limits.

A lot of card companies bump up the credit limit on your card without even asking whether you want this to happen. To my chagrin, I’ve had this happen on several occasions. But if you've got any issues with this, you can always just call your credit card company to discuss the possibility of lowering your credit limit.

This is one thing that a lot of people fail to remember when using their credit cards — that they can easily run into debt problems by allowing themselves to accept higher credit limits. Without imposing some set boundaries on our spending, it becomes way too easy for spending to lead to bigger balances over time. Credit card companies are very much aware of how human psychology plays into our spending behavior. As it is, we don’t all have the same levels of discipline to keep our spending patterns in check, so it's wise to implement debt and credit management strategies that enforce actual limits to the things we do.

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If you're facing higher credit limits, take the responsible approach and call up your credit card company and ask them to lower it to a limit that fits your budgeting and spending plans. If you know you'll only need $1,000 as a credit cushion instead of $6,000, then ask for it. You’re the customer and if they won’t address your concerns, then you can threaten to go elsewhere. In fact, it's something I'd probably just go ahead and do if I find that my card issuer shows that much disregard for their customers' requests. And when all is said and done, I feel better knowing that I'm taking steps to keep my credit use under control.

More Ways to Keep Credit Use Under Control

So what are some more steps that you can take to get a handle on your debt and to avoid falling into a tough financial bind? Remember that it's easier to manage issues like this before they spin out of your control:

  1. If you've got debt, stop using your cards or applying for additional credit until you're comfortable with your situation.
  2. Stop spending and go on a budget. If need be, use budgeting software to give yourself some spending limits. Simply learn how to say NO to yourself.
  3. Check your credit situation by reviewing your credit scores and reports on a regular basis. Check AnnualCreditReport.com for free credit reports every year, and credit score products like myFICO, which can help monitor your credit information for a fee.

Most of us have made some credit-related mistakes at one time or another.& You may already have run into problems with paying back what you owe. While there is a lot of credit advice out there that can help you if you are in this situation now, it's probably best if you first gauge and assess how your finances currently stand before you do anything else.

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Guest's picture
Jonathan

Except then you're putting your credit utilization rate through the roof. Which will drop your credit score.

Let's face it, if you've been paying off your balance every month then you shouldn't sudden'y face the temptation to spend every last dime of your credit line.

Also, many credit cards these days have No Preset Spending Limits. Essentially buy as much as you want regardless of your credit line. So if you're tempted to sudden;t buy everything in the store, you shouldn't have a credit card at all.

Guest's picture
Guest

You are correct. One of the biggest components of your credit score is the amount of available revolving credit. If you always keep your limit near your balance, your credit score goes down. It's actually better to have a ton of credit available than none at all. If you have issues with spending, then maybe you'd be better off with this strategy but reduce the limit until it gets to zero and go without a credit card!

Guest's picture
kt

something that i really thank God for is that i have no credit card debt and I am free from this nagging problem that can cause so much headache and sleeplessness. But prosaically speaking these are very good points that those with money issues should really control.

Guest's picture

Many people are having their credit limits reduced by the card companies automatically. This is forcing folks to rein in spending and lower debt balances. That is one benefit of this down economy is that we are being forced to spend carefully.

Guest's picture

Just cutting up the cards is probably your best bet. Many people just don't have the control that is required to keep those card balances low. If you are going to carry a balance, make sure to use the low interest rate cards.

Guest's picture

Credit card is as good as plastic money. A majority of world's population is caught into grips of its temptation. The only way one can lower its credit card debt is by limiting use of it. Try not to use credit card on every purchases you make and have only one or maximum two credit cards. The more you own, sure are the chances of increasing your debt.

Guest's picture
sergio

when bush was in office he had the bankrupies laws changed to favor the banks so there is no or very little risk for them to rise your credit limit.can't pay now,pay later at these interest rates we can wait forever.but as you can see they went to far and they are now taking back what they give freely ruining your credit score.so please join your local credit union,you will be much happier for doing it.

Guest's picture
EMS

Excellent post SVB. The bottom line folks is, be responsible. In addition to taking responsibility for managing your own credit profile, we need to have disciplined spending habits and exhibit, we hope, self-control.

Best,

Evan Stein
www.GettingOutOfDebt.me

Guest's picture
Maria

LOWERING you available credit drops your credit score! NOT good advice. If you can't control yourself - DON'T carry them, freeze them in ice, put them in a locked box and have a trusted friend hold the key. NEVER carry a balance! If you don't pay interest every month, you can actually put some money away for the emergencies you have put on cards in the past! Easier said than done, right?
Try a spending moratorium - For one month - gas, milk, and bread only - if you have kids, critical spending only (lunch money). Eat the groceries in your pantry. This is very hard but you should have a few hundred at the end of the month. Now decided how much (besides groceries) you really missed!

Guest's picture

Why don't people just face up to the fact that they have to take responsibility for their actions. No one else can do it for them so it's simple...stop spending beyond your limits or face meltdown.

Guest's picture

It's basically a matter of good credit management I think. Having various credit lines is not a problem as long as you are capable of handling those efficiently. Knowing your capacity and controlling the limits of your credit is a way of proper management. Temptations are just around the corners and battling with them needs a lot of resistance. If you do not want to apparently get involved with various financial obligations then you needs to be conscious of your finances and your responsibilities.

Guest's picture
MBC

It is true that lowering the limit will hurt your credit score, and I don't think it's a good startegy to make less available as a way to stop spending. The control must come from your goals not from necessity.

It is also true that you might end up with too much credit availble compared to utilization. You can call a creditor you have several cards with and ask them to move the credit from one card to another and then cut up the one you just closed, just make sure you keep either the oldest card, or the one with the smaller interest rate.

Guest's picture

Problem is, credit card companies give you extra credit as long as you're maintaining THEIR card to a reasonable level. This doesn't take other credit into consideration at all. To add to this, you have to phone them up to put a block on raising your limit.... credit crunch here we come!!