It’s Easy to Overspend with a Credit Card in Your Pocket – Here’s How to Overcome That
Credit cards are just so dang convenient, aren’t they? You just swipe, and magically you get to walk out of the store with a shopping cart filled with groceries or with that new purse you fell in love with at first sight. Unfortunately, when it comes to your savings, credit cards might be a little too convenient! Here’s why.
You’re Probably Spending More Because of Your Credit Cards
Study after study has shown that you are likely to spend more money when you swipe your credit card versus handing over your hard-earned cash. A study by Dun & Bradstreet actually found that consumers spend 12 – 18% more when they used credit cards versus cash.
Think about that. If you were to spend $30,000 a year with cash, you might end up spending roughly $5,400 more in that year if you used credit cards instead.
Why Do We Spend More with Credit Cards?
The short answer to that question is because it is so easy. Writing in Psychology Today, Utpal Dholakia explains that spending money causes pain in a consumer. Since credit cards create distance between a consumer and their money, using the credit card creates less pain. On the other hand, actually reaching into your purse and laying out twenty-dollar bills while watching your billfold decrease significantly in size makes it abundantly clear that you are losing something.
Credit cards also push the pain away, because the loss is not immediate. You don’t actually have to pay for the item until the end of the month, and even then, you really only have to cover the minimum payment.
It’s no surprise that research has shown that those who use credit cards also tend to make more impulsive purchases and to buy more unhealthy items than those who pay in cash.
Personally, I think credit card incentive programs also make it easier for consumers to justify spending more. I can tell you from personal experience that when my Chase Freedom card offers 5% cash back on restaurants, I suddenly find all sorts of excuses to eat out.
How to Get out of the Credit Card Trap
A lot of financial gurus counsel their audiences to pay for everything in cash. This will help them cut spending, make them think more carefully about what they really need, and possibly even allow them to enjoy their purchases more.
If you can actually make this habit work, I say, go for it. Personally, however, I think paying in cash is not very practical. It’s difficult, inconvenient, and impossible for those of us who do way too much shopping on Amazon or other online retailers.
Just knowing that credit cards make it easy to overspend can help you be more conscious of the temptation next time you hit the mall (or in my case, log onto Amazon). It’s the same way that I know never to keep Milky Ways in the house because I’ll gobble them all up. Knowing your vulnerability gives you the awareness to fight it.
Creating and actively tracking your budget each month can help you see where you are overspending and help you make changes to your life. Changes in habits need to be clear and convenient in order to stick. That’s why I use Mint.com for my budgeting needs. The software is FREE, and after you spend a few hours setting it up, it will perform all your tracking for you automatically. I have set up a variety of budget categories in Mint, which I check each week with my mobile Mint app. You can also ask to receive notifications when you exceed budget categories.
The truth is, we live in an increasingly cashless world. Instead of trying to go back to cash, let’s be smarter about how we use our credit cards. Understanding the danger every time we swipe is half the battle!
Need help creating a budget and sticking to it? WIFE has designed a fun financial program for groups of women (and men) who want to become more financially literate. You can start a Money Club or go online to the Facebook Money Club page.