Decoding Credit Card Spending: Insights and Strategies

Feb 07, 2024 / Reading Time: Approx. 4 mins

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Decoding Credit Card Spending: Insights and Strategies

As more and more people use credit cards to pay for things, researchers have noticed something interesting. It turns out that people tend to buy more expensive stuff when they use credit cards instead of cash. People are not just buying regular necessary things but splurging on more expensive stuff they might not even need. Credit card users also tend to make impulse purchases that make them regret down the line.

This is why many families are finding themselves in a lot of debt. This makes us wonder: Why do people seem to spend more when they use credit cards? It is an important question that needs some digging into. Do you, too, think using a credit card makes you spend more money?

In this article, we are going to explore the reasons behind this spending trend. We will look into how our brains and wallets react when we swipe that plastic card instead of handing over cash and how we can control our impulsive purchases.

The allure of credit cards lies in their ability to detach us from the immediate consequences of our spending. Using a credit card can feel like a way to avoid facing the fact that we are spending our own money. It is like a magic trick where the real cost of what we buy is hidden for a while. When we swipe our cards, we trick ourselves into thinking we are not really spending money because we do not have to pay right away. But later on, we realise the truth when the credit card bill comes at the month's end.

The psychology behind credit card spending is fascinatingly deceptive. Technically speaking, when we charge something to our credit card, we are not immediately spending our own money-we are borrowing from our future selves. This subtle distinction can have profound implications on our perception of value and our willingness to indulge in impulse purchases.

The structure of credit card billing further worsens this illusion of affordability. With the option of making minimum payments and EMI options, the immediate sting of a hefty purchase is reduced, replaced by the comforting notion of spreading the financial burden over time. We can't really see how much we are spending because we don't have to pay for it right away. It is like a trick that makes us think we are not spending much, but we realise the actual cost when we are stuck in a debt overhang.

Another reason people often end up spending more with their credit cards is because they make it easy to buy things on a whim without thinking about it. Some people enjoy shopping because it makes them feel good or lifts their mood. They see something they like, and the idea of getting it right away brings them happiness. These people might not think too much about whether they really need the thing they are buying or if it is too expensive. They just go for it because it feels good at the moment.

Compare this to cash-the tangible, finite resource that we can see and feel slipping away with each transaction. When we part with cash, we physically witness its absence in our wallets, creating a tangible reminder of the sacrifices we make with each purchase. This tangible exchange fosters a more immediate and instinctive connection to our spending, forcing us to confront the reality of our financial decisions head-on.

In today's digital age, the lines between spending and borrowing have become increasingly blurred. Nowadays, because of mobile wallets, buying things has changed. It is not just about using physical money anymore. Everything has become digital, which means it is not as real or tangible. When we spend money digitally, it feels different because we are not handing over physical cash. It is like our purchases are hidden behind screens, and it is hard to see the real impact of our spending.

This does not mean credit cards are always a bad choice. They can be really helpful if you use them wisely. They're not just for buying things; they can also help you manage your money better. For example, if you have a big expense coming up, like a vacation or a new computer, you can use your credit card to spread out the payments over time. Plus, some credit cards give you rewards, like cash back or travel points, for every 100 rupees you spend. So, by using your credit card for everyday purchases, you can earn rewards that add up to big savings.

Besides, credit cards are safer and more secure than cash and even debit cards. Furthermore, there are situations where you might not have any other option. If you run out of money or face an emergency, using a credit card could be your only option.

But it is important to choose the right credit card for you. Everyone's spending habits are different, so what works for one person might not be the best for another. And using your credit card responsibly is key. Paying your bills on time and not spending more than you can afford shows lenders that you are trustworthy. This can help you qualify for lower interest rates on loans in the future, like if you want to buy a car or a house. So, by using your credit card wisely now, you are laying the foundation for reaching your financial goals later on.

Here are some tips on how to control your credit card spending:

1. Set a Budget: Determine how much you can afford to spend each month and stick to it. You can also set a monthly credit card usage limit to avoid overspending.

2. Plan Purchases: Use your credit card for planned expenses only. This will help you avoid impulsive buys.

3. Track Spending: Regularly review your credit card statements to keep track of your purchases and ensure they align with your budget.

4. Pay Balance in Full: Always try to pay off your credit card balance in full each month to avoid accruing interest charges. While minimum balance payment seems like an alluring option, especially when you are facing a cash crunch, the accrued interest can put you in a debt overhang in no time.

5. Limit Small Purchases: Reserve your credit card for larger purchases and use cash or debit cards for smaller transactions to prevent overspending.

6. Be Mindful of Credit Limits: Avoid maxing out your credit cards or using too many credit cards, as it can negatively impact your credit score and increase financial stress.

7. Consider Cash Alternatives: Experiment with using cash or debit cards for a period to better understand your spending habits and reduce reliance on credit.

8. Seek Professional Help: If you are struggling with credit card debt, don't hesitate to reach out to a financial advisor or your lender/ credit card provider for guidance and support in developing a repayment plan.

9. Just Cut the Card: If you have no control over your credit card spending and are falling into a debt trap, it is advisable to close the credit card account by contacting the card provider and just cut that plastic card from your life.

[Also Read: 10 Tips to Use Your Credit Card Wisely]

To conclude:

While credit cards offer convenience and rewards, it is crucial to use them wisely to avoid overspending and accumulating debt. By setting budgets, planning purchases, and paying balances in full each month, you can take control of your credit card spending. Remember to track your expenses, be mindful of credit limits, and seek help if needed. With responsible use, credit cards can be valuable financial tools that help you reach your goals while avoiding financial stress.

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KETKI JADHAV is a Content Writer at PersonalFN since August 2021. She is an MBA (Finance) and has over seven years of experience in Retail Banking. Ketki specialises in covering articles around banking, insurance, personal finance, and mutual funds and has been doing it for over three years now.

Disclaimer: Investment in securities market are subject to market risks, read all the related documents carefully before investing.
This article is for information purposes only and is not meant to influence your investment decisions. It should not be treated as a mutual fund recommendation or advice to make an investment decision in the above-mentioned schemes.

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