How to set spending limits on debit and credit cards

Keeping track of spending is an important part of financial health. One way to do this is by setting spending limits on credit and debit cards.

Read on to understand what a spending limit on a credit or debit card is, as well as how to set it up and manage it.

What is a spending limit?

A spending limit is a pre-set maximum amount of money that can be spent or withdrawn using a debit or credit card within a specific timeframe or on a single purchase.

By providing a built-in safeguard to enforce financial boundaries, spending limits can support the efforts of building a personal budget. These limits can help protect card users from overspending and may aid in preventing fraud if card details are stolen and used for a large or unusual purchase.

How spending limits function for debit cards

Debit card spending limits are directly linked to the cardholder's bank account balance, ensuring that they only spend available funds.

However, overdraft features — where a bank can authorize individuals to spend beyond their current balance — can affect this limit. While this feature can allow transactions to process despite insufficient funds, accounts may incur additional fees and further account deficits.

How spending limits function for credit cards

Credit cards typically come with two options to limit spending: 1) credit card limits and 2) purchase or spending limits.

A credit card limit, determined by the card issuer, reflects the total amount that can be borrowed based on creditworthiness. This amount is usually determined by an evaluation of the card holder’s income, credit history, and existing debt levels.

Purchase and spending limits are set by cardholders. These are typically lower than the overall credit limit and can be adjusted to fit individual financial strategies. This allows for control over spending to stay within budgets and help prevent fees from snowballing.

Types of spending limits

There are three main types of spending limits: daily, transactional, and monthly. Here’s how each works:

Daily limits

Daily spending limits cap the amount that can be spent within a single day. For example, if a cardholder’s debit card daily limit is $500, they cannot spend more than $500 in one day.

Monthly limits

Monthly spending limits set the total amount that can be spent or withdrawn from a card within a month. If a credit card has a monthly limit of $3,000, cardholders cannot spend more than $3,000 in that month.

Transaction limits

Transactional limits are restrictions on the amount that can be spent on a single transaction. For instance, a credit card may have a transaction limit where any single purchase exceeding $1,000 requires prior authorization from the card issuer.

How to set credit card and debit card spending limits

While the process differs for each bank and credit card provider — and may not always be available — here’s how setting a spending limit typically works:

1. Log in to the cardholder account: Begin by accessing the card provider’s online portal or mobile app.
2. Navigate to card management: Look for a section like “Card Services,” “Card Management,” or “Spending Controls.”
3. Set or adjust limits: The card management area will typically have options for setting or adjusting spending limits.
4. Consider temporary adjustments: Some banks offer the option to temporarily adjust spending limits for travel or emergencies.

Prefer personal assistance or can’t find the settings online? Contact the bank or card issuer. They can usually help set or modify spending limits for cardholders.

Although setting spending limits might seem like a "set it and forget it" solution, it's essential to monitor financial transactions and adjust budgeting strategies regularly.

Potential benefits of spending limits

Some of the potential benefits of spending limits include:

• Greater savings: Spending limits encourage cardholders to make more thoughtful and planned purchases, which could lead to more savings via less spending over time.
• Security: Spending limits provide a potential layer of protection from fraudulent transactions. A spending limit could prevent a stolen card from being used for a large transaction that exceeds the limit or help alert cardholders to potential fraud.
• Better financial discipline: Like other tools that automate personal finances, limits enforce a budget constraint that can help people stick to their financial goals.

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