There 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?
- 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.
- 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.
- 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.
- 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.
- 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.
- 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)
This 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 OutOfYourRut.com.