5 Signs You Have a Spending Problem

Quick Answer

If you’re maxing out your credit cards and you can’t pay your bills in full, it may be a sign you have a spending problem.

A woman holds her head while looking at her laptop and holding her credit card.

Almost everybody overspends from time to time. It's easy to fall prey to overspending, especially if you have available credit. It can happen when you're shopping for groceries, purchasing clothes for work or enjoying a vacation, but it's likely not a major issue if you can still afford to pay for your purchases.

Overspending can become a problem, however, when it prevents you from achieving financial goals or paying your monthly bills. If you're overspending on your credit cards and can't afford to make your payments, you may have a spending problem.

It's essential to gain control of your spending in order to reach financial objectives like paying off debt, building good credit or purchasing a home. Accomplishing milestones can be challenging if you're overspending and piling up debt. Here are five signs you have a spending problem and how budgeting can help you solve it.

1. You're Making Impulse Purchases

Giving into impulse purchases can prevent you from directing extra money towards important financial goals, like saving for retirement or getting out of debt. The average consumer spends $314 each month on impulse purchases, according to a recent Slickdeals survey conducted by OnePoll. For perspective, if you instead deposit that $314 in your retirement plan each month and earn an average annual return rate of 8%, you'd produce over $56,559 in retirement savings over 10 years.

But that doesn't mean you should never have fun with your money. Give yourself a line item in your budget for entertainment and fun, with an amount that's reasonable and doesn't deter you from achieving your financial goals.

2. You're Maxing Out Your Credit Cards

If you're consistently maxing out your credit cards, it could be a red flag that you're overspending. Additional signs of trouble are if you're maxing your card out soon after making a payment or if you're juggling between your cards to find which has enough credit for new purchases.

Heavy use of your credit cards can translate to paying a substantial amount of interest over time. It can also negatively affect your credit score since the amount of available credit you use can count for 30% of your credit score. Bear in mind, the higher your debt balances, the harder it will be to climb out of debt.

3. You Can't Afford to Pay Your Bills in Full

Paying bills late or missing bill payments altogether when you don't have the money to pay for them is another indication of a spending problem. In addition to racking up late fees, creditors may view you as a riskier borrower and raise your interest rate or lower your credit limit.

To get control of your finances, try paying your bills first before making any discretionary purchases. Scheduling automatic bill payments is another effective strategy to make sure payments are made by their due dates. It's also essential to pay your credit card bill in full before the due date to avoid paying extra interest charges.

4. Your Credit Score Decreased

If your credit score drops, it could be a result of overspending. For example, even one missed payment can negatively affect your credit score. Remember, your payment history makes up 35% of your FICO® Score .

Additionally, if you're overspending, chances are your debt balances are high. Many finance experts recommend keeping your credit card balances below 30% of your available credit limit, but the lower, the better. Having high credit card balances could have an adverse effect on your credit score. As a general rule, lower credit scores make it more difficult to qualify for additional credit products, and you'll usually have to pay higher interest rates on new credit.

5. You Don't Save Money

If you're among the estimated 25% of Americans who don't have any money in emergency savings, look at your spending habits to see if that contributes to your lack of savings. If you're having trouble paying your bills now, imagine how challenging it would be if you suddenly faced financial hardship, such as a job loss or unplanned medical emergency.

It's critical to build up savings to withstand financial emergencies and for important goals such as education, retirement or a down payment on a home. Remember, you can achieve significant goals little by little, so get started saving as much as possible with whatever amount you can afford. Establishing a habit of saving is as important as deciding the dollar amount you can contribute.

How Budgeting Can Help You Avoid Overspending

Creating a budget is the best way to gain control of your spending and identify where your money is going. Reviewing how much you're bringing in versus how much you're spending—and what you're spending it on—can be an eye-opening first step.

Here's how to create a budget:

  1. Determine your net income. If your monthly income fluctuates, average out your earnings over a three- to six-month period to determine your average monthly income.
  2. Add up your monthly expenses. Review your bank statements for the past few months to determine an average amount. Divide your spending into categories for necessities and discretionary spending, and include as many categories as you like.
  3. Set specific goals. Once you've identified your average income and spending amounts, you can set goals accordingly. For example, if you have a goal of getting out of debt, you can determine how much you want to save towards that goal and decide where you want to cut spending to make it happen.
  4. Track your spending. Even the best budget planning won't do much good if you aren't tracking expenses. Whether you're using pen and paper, a spreadsheet or an expense tracking app such as Personal Capital, tracking your spending shows you exactly where you're overspending so you can make the appropriate changes.

Following a budget makes it easier to save money and pay bills on time, putting you on firmer financial footing now and in the long run.

Consider How Overspending Affects Your Credit

As you follow your budget plan and gain more control of your finances, it's also wise to keep an eye on your credit. As mentioned, credit reporting agencies may reduce your credit score if your debt balances are high or if you make a late payment, miss a payment or default.

Make sure your spending habits aren't impacting your credit with free access to your Experian credit report and credit score. Your credit report and score can give you an overall picture of your current credit health and identify areas of improvement so you can take the appropriate steps to achieve a brighter financial future.