When you use a credit card, it tricks you. It makes you feel like you’re not actually spending money. After all, the cash is just a substitute for the barter system. You exchange labor for money, and then you exchange that money for the goods that you need. You certainly feel it when you hand over the money that you earned.
But a credit card skips this step. That’s the psychological trick that it plays on you. The spending doesn’t feel real, so you don’t take it as seriously. You also know that you don’t have to pay the money back for a month, in all likelihood, so it’s easy to assume that you will “figure it out later,” even if you don’t have a plan to pay that money off now.
How much more will you spend?
Because of this psychological trick, some studies have discovered that people will spend 12-18% more when they’re using a credit card. They don’t intend to. They don’t set out to spend more money. But it’s just a lot easier to add other items in or make purchases that they would have avoided otherwise.
For example, say that you go to the grocery store with a $100 bill, and you put $100 worth of necessary groceries in your cart. Then, at the checkout line, you see numerous snacks and drinks that you would like to buy. If all you have is the $100 bill, you know that you can’t spend any more money, so you don’t give in. But if you’re just going to be charging the $100 to your credit card anyway, what’s another $20?
What options do you have?
Unfortunately, this psychological trick can lead to financial issues and overwhelming debt. People need to know about all of the options at their disposal, including potentially filing for bankruptcy.