We Are a Mess
If I tell you that you are more likely to overspend when you pay by credit card rather than cash (or debit card), I doubt that this will come as new information to you. I do think, however, that you will find the reasons why interesting. Researchers have a few clues to share:
The actual act of paying with plastic, according to a 2021 MIT Sloan School finding, is simply more pleasurable than paying with cash. Their finding was that using credit fires up the brain’s “rewards network,” causing consumers to “step on the gas,” as they put it, and increase spending. This is a bit different than the usual hypothesis that paying with credit is preferable because it is less painful in the moment than cash.
Research from Notre Dame in 2023 was also pretty insightful. They found that consumers prefer to use a credit card for “guilty purchases.” That is, it is easier to justify buying an overpriced fill-in-the-blank if you can just bury the memory of the purchase in a monthly statement that arrives weeks later.
And still we persist. A Forbes survey found that most people are fully aware that using a credit card drives them to spend more than they would otherwise.
None of what I described above is unique to whether or not you carry a balance on your credit card. All of you virtuous “convenience” card users who pay off their full balance faithfully every month are as guilty as everyone else. It’s just the way that we are wired.
Whether you should spend less than you presently do is a personal choice; what I care most about is whether you are paying attention to what you spend money on, how much you spend, and whether that spending is aligned with your goals.
So, let’s put all of this together:
You want to be consistently mindful in your spending.
Possibly you would like to redirect some of your usual spending to a different purpose… long-term saving, debt repayment, or simply a different lifestyle goal.
And because this is almost 2025, you do not wish to carry around wads of cash in your reticule because you are not a character in a Victorian novel, thank you very much.
How can we achieve all of these things at once?
One option is to use a debit card for your purchases. This is definitely something I counsel if you carry a balance on your credit card and are working to bring it down. But there are definitely times when a debit card is not preferable, such as online purchases, renting a car, etc.
Try this: Pay off your credit card balance (or the amount of all new purchases if you carry a balance) in full every week. Not every month, not every bi-weekly payday. Make your in-full payment on the same day, perhaps even at the same time, each and every week.
There will be no hiding from extortionately priced purchases. If the money is not in your checking account by 10am Friday (or whatever day you choose), you don’t get to buy it.
This includes big ticket items, by the way. It means, for example, if you are buying vacation plane tickets or a new appliance, the money to pay off the credit card is going to have to come out of your savings account…the account that you have consistently funded over time for just this purpose, right?
And for all of you “I just use my credit card to get reward points” people, this plan should make you happy. You get your rewards (literally and neurologically, as it happens), without hiding behind your points balance as a reason to spend.
Let’s face it. When it comes to spending, we are a mess. We are a tangle of emotions and competing priorities. But don’t confuse mindfulness about spending with constant worry. Throw a few guardrails around your spending behaviors to ward off the worst consequences of your very human tendencies and then move on. There are bigger things to worry about these days…
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