5 Reasons People May Overspend With Credit Cards

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Staying out of debt is as easy as spending less than you earn. Sounds simple, right? If it’s so simple, why do so many people find themselves over their heads in debt? Sometimes life just happens. An unexpected catastrophe, or medical emergency and you’ve got enough debt racked up for a lifetime. In other cases people just consistently overspend, and find themselves waking up one day saying, “How did I get here?”

Having paid off over $109,000 in credit card debt, I know a little something about the latter situation.

So how do people get into such a situation? Why is accumulating credit card debt so easy? I spent some time thinking about this, and came up with 5 reasons it’s so easy to get into credit card debt.

Delayed Consequences

If you swipe the card to buy something, what immediate impact does that have on your wallet or checking account? The answer is absolutely none. Zero physical dollars come out of your wallet or purse, and no number has to be subtracted from your checking account. The same goes for tomorrow, or the next day, or the day after that. It’s hard for many people to deny themselves purchasing something when there’s no immediate consequences.

Loan Based on Stale Information

If we try to finance a home that we cannot afford, the loan is denied. The same goes for many other types of loans. Our financial state is used to determine whether financing is approved. When we buy something with a credit card, we’re essentially taking out a loan for that item. We have the credit based upon financial information at the time the credit card was approved. Our financial state may have changed significantly since then, yet our credit line remains. This makes it easy for people to charge themselves into a bad financial situation.

The Minimum Payment

Credit cards appeal to people the same way that renting furniture or appliances do. Making monthly payments of $20 a month appears to be no big deal, whereas a price tag of $800 is a big chunk of cash!

No Personal Shame

A person can apply for a credit card online without any personal interaction. There’s no need to tell someone your personal information or why you’re applying for the line of credit. Also, if a person is declined, it just shows up on a screen, no judgmental loan officer to deal with.

People Don’t Like Limits

If a person wants something, not having the money to buy it makes them feel limited, like they’re being held back or deprived. Most people don’t like that. Having room on a line of credit allows them to purchase what they want, when they want (for a time anyway). It gives them shiny new things, and makes them feel like they’re living a life without limits.

These are just a few of the reasons credit cards could cause a person to overspend, and potentially result in a very bad financial state. But recognizing these triggers, can help realize the potential danger and help them be more financially responsible.

Can you think of other reasons that could cause people to overspend using credit cards?

About Travis

10 Responses to “5 Reasons People May Overspend With Credit Cards”

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  1. Sassy Mamaw says:

    In the past, I used my credit card as my emergency fund. I paid off my debt, but never thought I needed a savings account, besides retirement. So, as soon as something went a little sideways, I’d pull out the credit card. That would begin the downward spiral again! Setting back $500-$1000 “just in case” makes a huge difference.

  2. I think having a lack of solid budget, or spending plan causes overspending. It’s easy to go to the mall and buy $300 worth of clothing that you may very well need, but the thing about it is, do you need “those” $300 clothes? If you set your limit before shopping and plan your purchase, you can go in with the amount you plan to spend and spend only that. If I have no plan, that’s the easiest way to come home with more than I need and a bill I can’t pay back.

  3. PensionHelp says:

    Going back to your first point about delayed consequences, it is also made so easy now with all these different payment methods. Contactless cards are even quicker than paying with cash and you can even pay through your phone now so you don’t even need your wallet/purse on you to pay for something. We are required to keep such a keen eye on our payments now. Great article Travis.

    • Travis says:

      That’s exactly why I prefer cash, PensionHelp! It makes spending physical….you physically have less money in your wallet or purse. With contactless cards, or swiping a credit card, there’s no physical change to remind you that you have less money!

  4. After cutting up my card 2 (or 3?) years ago, I’ve had to get a new one. Ugh! There are certain transactions that are just a whole lot more convenient with a cc – perhaps more in Canada where the Visa debit idea isn’t so widely usable for online purchases. I’m not happy to say it, but when I got the card, my first month (March) saw me slipping into old bad habits. I can’t explain it – but my guess is that the “delayed consequences” appeal was behind it.

  5. Clearwing says:

    I usually rationalize credit card use as borrowing against my future paycheck – I can have the thing now and just pay off what I just spent when I get paid. I think it can also stem from poor budgeting, when essentials like groceries end up going on the credit card. The problem is, it’s pretty expensive to do that (even as planned) if you already carry a balance. Likewise, if anything unexpected happens, the whole plan is down the tubes and you fall further and further behind. I think a lot of people don’t grasp just how expensive debt can be.

    • Travis says:

      I rationalize credit cards similarly, Clearwing. It’s like taking a loan out for whatever you’re buying. Would you take out a loan to go out to eat? For a video game? When you think of it like that, using a credit card seems very silly.

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