Do We Spend More Money When We Use Credit Cards?


in Credit

all credit cards good hereThere are different opinions when it comes to credit cards. Some people, usually those who have gotten over-extended or had a major issue with one or more card companies, have come to see them as debt enablers and therefore as something to be avoided. Others marvel at the convenience and the various rewards programs that can help in other areas of our finances.

But I think the question is more basic than the potential either to over-extend or to benefit from the various incentives that may come from using the cards. From a big picture financial point of view, do we spend more when we pay with credit cards?

How much we spend has major implications for all things financial. Do credit cards influence us to buy things we don’t need? Do they cause us to buy more of the things that we would otherwise? Do they perhaps cause us to buy products and services that we don’t even need at all?

I’m going to put my head on the chopping block and say YES – to all those questions.

Why paying with credit cards makes us spend more

Why might we spend more with credit cards than with cash, checks or debt cards?

  1. Credit cards enable us spend money we don’t have. With cash, checks and debit cards we can’t spend more money than we have. Credit cards, however, are instant loans that will be paid out of income which hasn’t yet been earned. It’s easy to see where that leads.Good deals are harder to pass up. You have $100 to get you through to your next paycheck and your old TV is working just fine, but a big box electronics store has a wide screen TV that regularly sells for $1000 on sale for $600. If you had to pay out of your checking account, you’d have to pass on it. But the credit card in your wallet tells you that you can go ahead with the deal.
  2. Convenience becomes king. It’s ironic that cash – which is money – is probably accepted in fewer places these days than credit cards (think airline ticket counters and online purchases). As a result, credit cards are super easy to use. Convenience is one of the critical aspects of credit card use. Anything easy will have fewer inhibitions attached to it.
  3. We don’t “see” the money we’re spending. When we spend cash we see the money leaving our wallets. With checks and debit cards, we see the money leaving our bank accounts. With credit cards, we’re spending someone else’s money, and that just doesn’t come with the same hesitation. Sure there are credit limits with every line, but those limits can be increased and we may have several lines at any one time.
  4. Rewards programs incentivize spending. Just as we can convince ourselves that we’re “saving money” because we’re buying a product on sale, we can also justify spending more because we’re building up rewards points or other benefits. We might be thinking that we should buy something we wouldn’t otherwise because we’ll get some of it back from the credit card issuer.
  5. Credit cards make it easier to “bargain with the devil”. Let’s say you’re having one of those times where you have more month than income; absent credit cards you’d have to cut some expenses back or eliminate others entirely. But if you’re a credit card user, you’re more likely to dismiss the shortfall as a temporary problem and continue with your normal spending patterns. The tight budget will be covered by credit.
  6. Credit cards can create an “anything goes” existence. We live in the media age, and there’s little doubt that messages coming at us each and every day do have an affect on how- and how much-we spend. The relentless message to spend combined with revolving credit is a potentially dangerous mix.

I realize that there’s an argument that credit cards can be used to manage finances, and that there are tangible benefits provided by the credit card issuers to help us do it. Some people have become experts at doing just that.

But I can never escape the fact that the banks behind the credit cards are for-profit businesses who have become pretty stinking good at making money, particularly on credit cards.

Big picture, the whole concept behind lending is for the lender to position itself as an intermediary, then to skim a small amount of money off of each transaction. Since no one transaction provides a big payday, the key then is mechanize the process by getting the customer to engage in a series of transactions that will provide a steady cash flow to the lender.

My willingness to use my credit cards, and to do so as liberally as possible, is an integral part of that process. Spending is the name of the game with credit cards! And the banks have become experts at making that happen!

The result is a slow, almost imperceptible transfer of money from borrower to lender—from me to the bank. Somehow I see myself as a loser in that game and prefer to avoid it. For me, the overall benefit to my budget is to use credit cards as little as possible.

What do you think—do you think you spend more with credit cards than you do with debit cards or cash?

(photo credit: shawnzrossi)

Kevin At Out of Your RutThis post is from FiscalGeek staff writer: Kevin Mercadante. I’m very excited to have him contributing to the site. You can find out more about him at his own blog


Spedie 2011/03/24 at 8:42 am

I am nearly positive that this article will get a lot of responses. I don’t have a credit card and haven’t had one since Xmas day, 2007.

I spend a lot less now than I did when I had that piece of plastic.

I, for one, refuse to play the credit card game anymore. My life is a lot simpler. I don’t play with those snakes. The financial industry can shove it when it comes to credit cards, as far as I am concerned.

I was one of “those people” who paid my balance off, in full, early, for 13 straight years without fail. This was from December 1994 to December 2007.

I won’t have one of those cards ever again. And guess what? I haven’t died from lack of credit card use.

Kevin 2011/03/24 at 12:55 pm

Spedie – I’ve read the articles going the other way, that there’s no evidence that you spend more with credit cards or “I’ve been using credit cards for X years and never had a problem, etc” but I don’t buy it.

The whole purpose of credit cards is to get us into debt and to keep us there, otherwise no one would offer them.

Rob 2011/03/30 at 4:55 pm

The only real benefit to having a credit card is that a rolling credit account will build up your credit score, which makes getting a loan easier and cheaper. My experience has been that all the extra benefits offered by the card companies basically amount to “Buy three things you don’t need, we’ll give you another thing you don’t need.” The thresholds are set so someone who uses their card responsibly won’t see much benefit. My current credit card has a rewards package that I never bothered to sign up for because it would take a couple of years to get a $25 gift card.

That being said, I also don’t think it’s a sin to have a credit card as long as you do use it responsibly. Part of that is to never carry a balance and always pay on time (early if you can manage it.) It doesn’t matter if your card company triples their rates and fees, as long as you pay it all off on time, you’ll be fine. And if they do something particularly egregious, not having a balance gives you the freedom to kill the account and take your business elsewhere immediately.

To the point of the post, anecdotally, I have seen my spending go up when I started using credit cards again. I never crossed the line of carrying a balance, but I still spent about 30% more than I did when I was just using cash and a debit card. I fixed it by picking three regular monthly expenses and using the card ONLY for those three things. I use my card to buy gas (I have a long commute, so I end up filling up every other day.), groceries, and my comic book collection.

Kevin 2011/03/30 at 6:50 pm

Rob – Credit cards give us that freedom to spend, and that’s the point. Anything that’s easier can quickly become something you do more of. I think the credit card companies get that, but John Q. Consumer usually doesn’t.

But I agree that credit cards do have their uses and it’s worth having one. As to using it to juice your credit score–there are less risky ways to do that.

Rob 2011/03/31 at 6:49 pm

Kevin, I agree with you. Credit cards can lend themselves to abuse and cause a whole lot of headaches if you’re don’t use them responsibly.

However, I don’t think it’s a fait accompli that having a credit card will lead to that outcome. Like every other tool in existence, you can use it to build something or tear something down. Someone who knows how to handle their debt is in virtually no danger of getting screwed over.

Jason 2011/03/30 at 10:23 pm

The answer is yes because we physically don’t see the money so it’s not as painful.

Kevin 2011/03/31 at 10:39 am

And since we don’t see it leave our wallets it’s “out of sight, out of mind”. That’s a spending enabler if ever there was one!

Jerry 2011/04/01 at 5:25 am

I agree with all of your points. I have credit cards and I use them very judiciously but I didn’t always. I think not having the money in front of you leads to overspending. The only insurance for not doing this is to pay cash for most of what you want or set a limit on your card so you don’t overspend.

Kevin 2011/04/01 at 6:46 am

Jerry – That’s something I’ve found to be true for myself as well. The closer you come to spending cash (checks, debit cards), the less you spend because the consequences (less money in your wallet and bank account) are obvious and immediate. It serves a purpose with spending similar to what an electric fence does in keeping a dog from leaving your property.

ross 2011/04/27 at 3:45 pm

I think alot of people get in trouble with credit cards because it’s just not the same feeling as when you see your own money leaving your wallet. Its just psychologically different.
The amounts of money you are spending just don’t really sink in unless you see your balance drop after you make a purchase. I’ve personally never really had a problem with overspending. But i can see why it might not click right away for some people.

Kevin 2011/04/27 at 5:03 pm

Ross–I agree. There’s an impact that comes with seeing cash leave the wallet, or digits leave your bank account. Both are immediate, where credit balances can always be dealt with later.

Nasreen 2012/02/03 at 10:00 pm

I’m months late to the party, but I was wondering whether or not a credit card is more secure than a debit? It’s handy to have them for online purchases and ATMs/Metro charging stations where there is less security.


Guillermo Pizarro 2012/05/03 at 5:51 pm

I think that the people spend money depending of financial education, if you are messy don’t matter the method that you used (card or cash) always you going to spend to much money unnecessarily, in my opinion the only real benefit to having a credit card is that a rolling credit account will build up your credit score, which makes getting a loan easier. I prefer to pay with my credit card because I am very tidy.

"Tom" 2012/05/22 at 6:59 am

That’s where lies the problem. Credit card acts like a negative catalyst that provokes us every time to spend more than we can have. At the end of the day which leads us to ultimate financial puncture, offering us a troublesome life all the way. Where as if we use cash or debit card, the expenditure isn’t going to exceed the amount that we have. So the expenditure stay within our limit. It seems handy no doubt, but most of the time we fail to control the usage.

terry 2013/09/16 at 2:58 pm

I absolutely tend to spend more when i use credit. Going to the bank and paying for things with physical cash seem to make me think twice before i actually buy something.

Now, i really try to use cash as much as i possibly can. I have reduced my spending on entertainment by about 10% doing this.

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