How Much of Your Spending Should You Put on Your Credit Card?

iQuanti: Credit card companies give you a specific credit limit that you can't exceed. You can spend as much as you want on a credit card if you don't break that limit, and spending with credit cards also offers incentives such as cash back or rewards.

At the same time, however, you want to avoid too much debt, which can hurt your credit score and set you back financially. Thus, it's important to find the right balance of credit card spending.

Below, we'll discuss some factors to consider when figuring out how much to spend with a credit card.

Credit Card Spending and Credit Score

Credit cards can offer a big boost to your score when used the right way. First of all, on-time payments are the #1 factor in calculating your FICO score. The longer you continue paying your bill on time, the higher your score goes.

That said, you want to keep utilization — your balances divided by your credit limits — below 30% at the most. The lower (without avoiding spending), the better.

For example, say you have two credit cards, each with a $5,000 limit, giving you a $10,000 total limit. Ideally, you want both credit cards to stay below $1,500.

Rewards

Rewards are another great aspect of credit cards.

First of all, there are signup bonuses. These are generally $150-$300 of free money when you spend a certain amount (usually $1,000-$3,000) within the first few months (usually 3) of opening, although some cards offer even bigger benefits such as cashback match for your whole first year.

These bonuses are excellent if you're about to make a large purchase. Use the credit card and instantly save a few hundred dollars.

Then, there are cashback rewards and travel points.

Cashback rewards pay you money back for your spending. Many cards have a 1-2% cashback rate on everything, while some offer rotating 5% categories.

Travel credit cards pay you points (sometimes called miles) when you book flights, hotels, rental cars, and more with the cards. You can redeem these miles for free travel.

There's a myriad of other rewards arrangements and perks credit cards offer independent of spending levels — especially travel cards.

Avoiding Credit Card Debt

According to Debt.org, the average American household has around $5,135 in credit card debt. That might not sound like much compared to auto loans or mortgages, but APRs on credit cards are often higher than secured loans like those.

What makes credit card debt difficult to escape when it builds is that card companies capitalize interest. That means card companies charge interest on any balance you don't pay off by the end of a billing period, then add that interest to your balance.

In short, credit card debt can spiral out of control if you are spending more than you can pay back each month. At some point, you may struggle to make minimum payments every month, which can harm your credit score.

Still, you shouldn't avoid spending, but instead, only spend as much as you can pay off every month. Credit cards can be quite useful when used prudently.

The Verdict: How Much to Spend?

It's tough to give an exact number, but here are some guidelines with the above information in mind:

Try to keep your total credit utilization and each card's utilization under 30%. The best way to do this is to use your credit cards just for purchases you'd be making anyways and that align with your budget.

That way, you can build your credit, save money with rewards, and avoid costly credit card debt.