Mastering Credit Card Spending

16 July 2023

Hey there, savvy spender! We’ve all been there—swiping that shiny plastic card and feeling like we’re splurging with funny money, it can sometimes feel like you’re playing with Monopoly money instead of real cash. It’s a common feeling, and studies have confirmed that using credit cards often leads to spending more money than if you were using cash. But fear not! We’re here to guide you toward financial empowerment and help you regain control over your spending habits.

Let’s dive into the psychology behind credit card spending. Have you ever thought that you’re not really spending “real” money when you charge your purchases? Well, technically, you’re borrowing money. As author and certified public accountant Michele Cagan explains, the allure of small minimum payments can make purchases feel like incredible bargains. The bill won’t hit you until a month later, so it’s easy to overlook the impact of your spending.

Countless behavioral economics studies support this notion. For example, researchers at the Massachusetts Institute of Technology discovered that people were willing to pay over twice as much when using credit cards compared to cash for the same highly desirable items. It’s the allure of buying now and paying later that leads us to overspend. Another study by Dun & Bradstreet revealed that people spend 12%-18% more when using credit cards instead of cash. The difference is even more striking when comparing the average value of cash transactions ($22) to non-cash transactions ($112) – a whopping 409% increase, according to the Federal Reserve Bank of Boston.

Real-world examples also demonstrate the impact of credit card spending. Did you know that diners tip about 4.3% more just by seeing a credit card logo on their restaurant bill tray? Even McDonald’s reported higher average tickets when customers used credit cards instead of cash. It’s clear that the psychology of spending plays a significant role in our purchasing decisions.

But fear not, dear friend, because we’re here to help you navigate the world of credit card spending. Let’s explore some strategies to regain control over your financial choices:

Be mindful of your spending: Recognize that using a credit card is not an invitation to go on a spending spree. Treat your card like “real” cash and remember that you’ll have to pay off the balance eventually.
Stick to a budget: Plan your expenses ahead of time and set limits for yourself. By doing so, you’ll be less likely to succumb to impulsive purchases that can derail your financial goals.
Pay in full and on time: Avoid accumulating unnecessary interest charges by paying your credit card bill in full every month. Set up automatic payments to ensure you never miss a due date.
Enjoy the benefits: Credit cards offer several advantages, such as fraud protection, consumer purchase protections, extended warranties, and valuable rewards. Take advantage of these perks while staying responsible.

As cash becomes less popular in favor of digital payment methods, such as credit and debit cards, it’s essential to maintain control over your spending habits. And while credit card spending can be a slippery slope, responsible usage can bring you numerous benefits. Not only can you build credit and enjoy added consumer protections, but you can also earn significant rewards along the way.

Remember, the power is in your hands, and with the right approach, you can unlock your financial freedom. At Wellthi, we’re your supportive friend on this journey, ready to empower you to achieve your financial goals. So go ahead, swipe that credit card, but do it with confidence, knowing that you’re in control of your financial destiny.