Swiping Into Debt: The Subtle Tactics of Credit Cards
“When I go out with $40 in my pocket, I have to stop spending by $40. If I have my credit card I surely spend $41.”- James Schaefer
Money has long been a cornerstone of human existence, shaping societies, driving economies, and determining our personal choices. From Barter system to modern day currencies, the commodity to cash route has travelled long. Well, a key breakthrough in this journey occurred in 1946 with the introduction of plastic money, or the prized possession; “credit cards”. One swipe and you can buy the entire counter without paying a penny. But behind the glossy surface lies a complex web of psychological tactics and financial traps that encourage people to spend more than they can afford. Read further to know about how one of the most influential financial tools can take you behind the bars of debt, overspending and misery.
No Limit, No Problem !
The ability to spend limitlessly without having to worry about the weight of your purse might sound interesting to many. One swipe can get you closer to your wishes, materialistic pleasures and the luxuries of the world. These magic plastic cards offer several benefits, including convenience, building credit history, and earning rewards such as cash back, points, or travel miles. Additionally, many credit cards come with perks like travel insurance and extended warranties. Michele Cagan in her book, "Debt 101" says that “you're not really spending money instead you're borrowing money. "You know that you’ll have to pay the bill eventually, but the promise of small minimum payments can make purchases seem like bargains.
But these perks may not give you long lasting pleasures, especially when you are handed with long bills at the end of the month with a bulk worth heavy service charges.
What makes you “Spend uncontrollably?”
We tend to value things less if we can’t see it. Similarly, how mindless scrolling makes us loose the track of time. Mindless spending can also make us loose the track of budget. The base of this is addiction and the satisfaction that our brain revives from quick and effortless tasks. Just how you need digital detox once in a while, you also need to cut off from overspending occasionally.
Kevin O’Leary, an American “Shark Tank” investor and businessman said, “With 21% interest rates, credit cards are the real silent killer in America”. source . Let us know why do credit cards appear so attractive to us?
Lack of Immediate Consequences: Unlike cash, which physically reduces your available funds, using a credit card doesn't provide an immediate sense of how much you're actually spending. The sudden realization of frictionless spending doesn’t hit unless you physically pay huge bundles of cash.
A Gamble of Debt. : Credit card companies offer rewards like cash back, points, or travel miles, which can encourage you to spend more in order to earn these benefits, even when it’s not financially necessary. You can call this a Form of gambling, where if you win; then you play again to win more.
Social Influence and FOMO: The pressure to keep up with trends or others can lead to impulsive spending. Social media and advertising can trigger desires for status symbols or luxury items. The promotion of overconsumption and the mindset of having brand new things each day, trigger you to shop even if you don’t need things. This is the vicious cycle of wants.
Psychological Traps: Credit cards often use tactics like low-interest introductory offers or "buy now, pay later" schemes, which can trick consumers into thinking they’re saving money while actually encouraging spending. A shiny bait to attract the mouse, it seems.
A new Bankrate survey shows that, among credit cardholders carrying a balance month to month, 72 percent are still making an effort to earn credit card rewards. source
Minimum Payment Option: The ability to make only the minimum payment creates an illusion that the debt is manageable, which can encourage continuous spending without fully understanding the long-term impact.
Safeguards Against “The Credit Card Trap”
“All that glitters is not gold”, credit cards and other forms of plastic money may seem exciting but it is equally necessary to handle them with care and caution. The following suggestions can ensure that a light card doesn’t get too heavy on your pocket.
Define your budget Boundaries: Create a monthly budget that outlines how much you can afford to spend on different categories (e.g., entertainment, groceries, dining out, etc.) and assign specific amounts to your credit card use, ensuring you don’t exceed the set limits. If you’re finding it hard to control spending, contact your credit card issuer and ask to lower your card's credit limit
Track Your Spending: Use apps or tools that track your credit card expenditures in real-time. Apps such as Pocket Guard and YNAB can be helpful. This way, you can see where your money is going Review your credit card statements monthly to spot any unexpected or unnecessary purchases.
Use Cash for Everyday Expenses: Limit credit card usage for larger or planned expenses, and instead use cash for small, day-to-day purchases (like coffee or snacks). This will help you be more mindful of your spending habits.
Set Up Alerts for Purchases: Most credit card companies allow you to set up alerts (email, text, or app notifications) for specific spending limits or purchases. This way, you get immediate reminders whenever you make a purchase, helping curb impulse buying.
Utilize the "Cooling-Off" Period: Before making a non-essential purchase, give yourself a 24–48-hour cooling-off period. This will help you decide if it’s something you really need or if you’re just buying it out of habit.
Limit the Number of Credit Card: Having multiple credit cards can encourage overspending. Limiting yourself to one or two cards can make it easier to control your finances and reduce the temptation of "spending on credit."
Credit cards are meant to be a financial asset, do not make them a liability. If not today then tomorrow, the debt will have to be paid. Spend wisely!
-Chandrani and Rijul
