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If you've had enough binge-watching during the coronavirus quarantine and want to get a jump start on some financial spring cleaning, now might be the perfect time to do a credit card statement audit.
It's a good financial practice to monitor your credit card transactions regularly, and it's easy to do whether you receive paper or digital statements. You should always be scanning your accounts for fraudulent activity and keeping track of your balance.
But every so often, it's smart to do a credit statement deep dive with an important goal in mind — to ask yourself whether your spending is putting you on track toward the life you want, or taking you further from your goals.
And with the financial uncertainty that many Americans are facing as a result of the coronavirus pandemic, it's more important than ever to cut back on nonessential spending with the goal of saving money.
Below, CNBC Select shares tips from Jeff Rose, a certified financial planner and author of "Soldier of Finance: Take Charge of Your Money and Invest in Your Future," about what to consider when you review your credit card statements so that you can feel more in charge of your credit score, your spending and your life.
First, make sure you understand your credit card statement. Most major issuers have a resource page on their website where you can read FAQs and learn more about what you'll see when you open your statement.
There are some distinctions between card issuers, but every statement will have your account summary, which is essentially a rundown of what took place in the latest billing period. It will probably include:
- Your previous balance amount
- Payment and/or credits made to your account
- Cash advances
- Balance transfers
- Fees charged
- Interest charged
- Available credit (for both purchases and cash advances)
Then you'll find information about your new balance, payment due date and minimum payment:
There is also a late payment warning showing you the fee you'll be charged if you don't pay on time (if your card charges late fees). And usually, your statement will include a breakdown of how long it will take for you to pay off your balance if you only pay the minimum.
For example, it would take nine years to pay off this balance of $1,884.67 if the cardholder were to only pay the $35 minimum each month. The cardholder would also pay almost $3,000 in interest charges.
You'll also likely see account messages, such as payment reminders and special offers, plus notices about fair credit laws, your rights as a consumer and ways to find credit counseling.
But perhaps the most valuable information in your credit card statement comes under the section entitled "Account Activity" or "Transactions." Here, you can see a complete listing of every purchase you made during the previous billing cycle followed by a year-to-date total of how much you've paid in interest and fees.
If you're doing an in-depth audit, this is where you want to dig in.
Setting up autopay is one of the best ways to stay on top of your card payments (and thereby ensuring a higher credit score), but it certainly makes it easy to overlook problems when your card payments are out of sight and out of mind.
That's why it's wise to closely review all of your transactions on your card statement. As you go over this section, keep two main concerns in mind — fraud and overspending.
"It only makes sense that fraud might increase," says Rose. "After all, many more people are stuck indoors around the country, and people inclined to commit crimes might see an opportunity."
And beyond bad actors, says Rose, people are beginning to feel the pinch of possible unemployment.
"The economy may be hurting for a while, and many people are going to face a loss in income or even a loss of their career. When times are tough like this, it's not surprising that instances of fraud have the potential to increase."
There are some simple steps you can take to prevent fraud, and a good place to start is by reviewing your own statements. Go over each purchase made on your card and make sure that you, or an authorized user, made it.
"Hackers and thieves who get their hands on your credit card details don't always charge huge purchases on your credit card, and especially not at first," Rose explains. "They might test you to see if you'll notice by spending small sums of money."
"If you spot a fraudulent purchase on your credit card statement, you should call your credit card company right away," says Rose.
In some cases, you'll need to file a formal dispute, but most of the time your card issuer will solve it by removing the charge, deactivating your current card and sending you a new card (with a new number) in the mail.
While you're reviewing your balance for fraudulent charges, it's also a good time to look for opportunities to cut back on spending. With so much financial uncertainty ahead, you'll want to eliminate unnecessary spending in areas that aren't essential right now.
As you scan your transactions, look for patterns of spending in areas you've forgotten about or don't really care about anymore.
In a survey conducted by the consulting firm West Monroe, consumers reported spending on average $237.33 per month on subscriptions across 21 categories. This includes subscriptions to streaming platforms, wellness apps, news outlets, lifestyle boxes, children's book packages, cosmetics boxes, dating apps, home security systems and more.
Yet, most of the participants answered on a first guess that their monthly spend was more in the ballpark of $79.74 — much lower than what they actually shell out.
In addition to subscriptions, be on the lookout for patterns of making unnecessary purchases at convenience stores, bars, restaurants, coffee shops and on Amazon. Ask yourself whether you actually want to spend money on these things, then adjust your budget or unsubscribe accordingly.
No other document gives you such insight into your spending behavior as your credit card statement, especially if you use it to make the majority of your everyday purchases. Think of it as a historical document that tells you all about yourself, including what, when, why and how you spend your money.
"Credit cards make it easy to keep track of how much you're spending and where, making them an excellent tool if you want to keep your budget in check," Rose says.
"Budgeting can be fun," he argues, "and looking over your credit card statements is definitely part of the process."
Not convinced it's fun? Rose suggests trying to "gamify" your budget and challenge yourself to spend less over the coming weeks and months while we wait out the economic uncertainty.
"Perhaps you could limit yourself to a certain number of transactions each month, or you could set spending limits in popular categories like food and transportation then see how low you could get your spending."
Then, find free or low-cost ways to reward yourself for taking care of your long-term financial health.
Information about the Chase Freedom® and Capital One® Venture® Rewards Credit Card has been collected independently by CNBC and has not been reviewed or provided by the issuer of the card prior to publication.
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