Remember life as a little kid, asking questions, trying to figure out how everything in the world around you fit into place? Well if you were anything like me then you had a lot of questions that were left unanswered.
Take money, for example. I was under the perception that everything in the world was free and that anyone could have anything they wanted, mostly because I thought money was just fancy colored paper. I didn’t understand how green paper could have value or that it came in different increments or that you needed to work in order to gain it.
What I didn't understand more than paper money was credit cards. How a little piece of plastic could grant the power to buy almost anything (well, within reason) was beyond me. It turns out that little piece of plastic is essentially the nail in your financial coffin.
So we wonder why credit cards lead to overspending...
False perception of what you actually have:
It’s all in the psychology of credit card spending. When it comes to the transaction, handing over physical cash versus a credit card makes a big difference. When you’re carrying cash you’re much more likely to spend it sparingly because the next time you open your wallet, it’ll be empty. That feeling of loss is the difference between an impulse buy or resisting not to. Whereas credit cards will always have a place tucked neatly into your wallet. Yes, that plastic death trap may be a tangible power-up but you may sometimes miss sight of what you’re losing as opposed to how focused you are on the item being purchased. Keep the credit cards for emergencies and try to pay with cash, doing so will restrict some of those bad spending habits.
So many swipes:
The fact of the matter is credit cards plain out make it easier to impulse buy. They cut out the middleman entirely, the ATM. Picture this: you’re out perusing an alley full of shops and street merchants and something catches your eye. You decide you have to have that bohemian scarf, hand-stitched sweater, whatever appeals to you. You pull out your wallet, and while there’s no cash, there’s a little piece of plastic to make your purchase that much easier. Now take the same scenario, minus the access to credit cards. Had you decided to make a trek to the ATM and then back again, rationale would have kicked in and a little talk inside your head about how much you actually needed that impulse purchase would take place. It’s just too easy to swipe now and pay later (that’s what creditors are hoping for).
Rewarding your desire for instant gratification:
Credit card companies want you to spend. Yes, perhaps there are those of us disciplined enough to use credit cards for emergencies or set low limits on them to resist the urge to go overboard, but companies prey on our want for immediate satisfaction. They prey on human instinct to want more and more, by giving us rewards for our indulgence. These rewards come in the form of frequent flyer miles, cash back, “exclusive” deals... things that only repeat the spending cycle. Getting rewarded for spending money doesn’t sound very easy to turn down.
Credit card companies have made it increasingly easy to borrow money. Whether you have no credit, bad credit, or a low credit score, there are still options open to you. Granted you shouldn’t expect to have a very high credit limit, but if you fall under this category, spending probably isn’t in your best interest at the moment.
What to do about it
The allure to credit cards is that you’re not directly spending cash. There’s no loss of money you currently possess. So how do you combat the compulsion to spend with credit cards?
- Freeze them - Keeping accounts active without accessing the credit limit.
- Cut ‘em up - Immediately stops the increase of credit card debt.
- Demagnetize them - Keeps personal info safe after the disposal of old credit cards.
- Label them - Use credit cards for certain reasons to prevent overspending.
- Delete online card info - Saved online credit card info enables buying behavior.
- Close them - If you can’t keep track of debt, close them off completely.
- Emergencies only - Keep low limit cards for emergencies and never pay off credit cards with other credit cards.
So why do so many consumers overspend instead of save? Because the odds are stacked against you. Because companies give you credit cards with the intent of knowing you’ll probably give-in eventually, which works out generously for them. Break the habit and take back control of your finances.