Shocking News: Credit Cards Cause Debt

30 Dec Shocking News: Credit Cards Cause Debt

Sometimes, science seems to exist to prove the perfectly obvious. For example, this year science delivered the amazing new discovery that people spend more with credit cards than they do with cash. Well, stop the presses!

Actually though, it’s important to keep in mind. As LiveScience reported this year, we have trouble thinking of more abstract methods of payment as actually costing us money.

When we have to pay cash for things, we spend less. The feeling of the currency slipping from our fingers is more painful than the cool abstract piece of plastic being handed over at the checkout counter. In other words, it’s pretty much exactly the same as when a casino uses chips or plastic cards instead of real currency on the gaming floor — losing plastic chips doesn’t cause our brains to freak out as much as losing hard-earned dollars.

Interestingly, they found that we can get emotionally attached to cash-substitutes if given enough time. Consumers were more likely to spend a new gift certificate than cash. But if we hold onto the certificate for a period of time — getting used to possessing this form of currency, or wealth — then we get stingy again. No wonder the stores advertise to get folks to redeem gift cards so quickly!

They also concluded that when we have to consider the price of each individual item of a meal, we’re likely to be more tight-fisted regardless of using credit or paying cash. So it seems that if we think hard about what we’re spending in detail, our sense of control reasserts itself.

In other words, hard, real wealth is easy to hang onto. Anything else and you have to make yourself hang onto it.

So basically…well, we’re stupid about money. If it’s not actual cash in our hands, our brains have to be reminded pieces of plastic are still costing us money. It’s just a step removed. But it is a big — abstract — step apparently. If you don’t remind yourself of that simple fact, your brain will be perfectly happy to do stupid things with credit, quickly and easily.

In that sense, the banks cutting back on credit card lending could be the right medicine for consumers. At least if they aren’t too far gone already.

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I have been a bankruptcy attorney since 1989. Our firm represents consumers filing bankruptcy almost exclusively, although I have represented bankruptcy trustees as well as creditors. For 2017-2019 I served on the American Bankruptcy Institute's Commission on Consumer Bankruptcy. Our Report recommended numerous changes to improve bankruptcy law to make it serve everyone in the process more effectively. If you live in Eastern Missouri, visit our website, send an e-mail or give us a call (314) 781-3400. Our website:
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