How to not be a credit card junkie

Recently I’ve been trapped in a massive vortex of credit card spending that’s become a serious problem for me. I’ve boasted before about how to use credit cards rationally even here. But all people including me are irrational creatures. When we get hooked on the cheap dopamine of mindless spending it’s very easy for our brain to throw rationality right out the window.

So I want to get into some psychological side things that I’ve noticed that might make you vulnerable to the credit card ecosystem. A lot of this is reflecting on my own behavior.

Distorted sense of scale.

Normally it’s a good financial practice to have a budget. So you don’t spend more than you earn, say in a month. With a debit card you can easily materialize this limit. You can put your budgeted money for the month in one account and that’s your cap. You can’t spend more than that. And when you make a purchase you see the effect of it right away.

But with credit cards this is very difficult. You can’t figure out the exact scale of what you’re purchasing with relation to your month’s paycheck. You can easily bargain with yourself that you can split the cost between this month and the next month. After all you have about 1-2 months to actually pay the bill.

The problem with this is, there is always another expense that could occur next month. This one could be an Emergency and an essential cost. If your budget is already stretched thin when you start the month there is no room to fit in anything unexpected. Even your essential spending will feel some pressure because you know there is a big bill ahead. And if there are one too many emergencies you’ll have no option than to credit your way through in the last days of the month.

It’s on discount. It’s a bargain.

Well is it? It says 20% off. But you spend 80%. That’s 4 times the actual money you are saving which in reality you don’t actually save anything. And the framing of the discount makes people more gullible to the marketing. “Save 20% off”. That doesn’t sound that bad does it? Except you don’t save anything. You just spend. The only place where this can be useful is if you purchased something that you absolutely needed and planned for on the said discounted price. But we all know the number of things that we actually need we purchased is vastly outnumbered by things we purchased just because it was on sale.

Installment plans. Devil in disguise.

Oh the installment plan deal. This exposes us psychologically in many fronts. You get the false sense of accomplishment by being able to do an expensive purchase that you didn’t really have the money to buy. You easily make your net worth negative without even realizing it. You might only need to pay 1/60th of the cost per month. But you have the total 60x debt to your name right after you made the swipe. Maybe you don’t know this but credit card companies can terminate installment plans at any time and ask you to pay the total remainder within the next bill cycle. Imagine what kind of a hole you’ll be in.

Another way installment plans can damage you without you knowing is this. You can easily add multiple installment plan options thinking that individual monthly payment isn’t that big compared to the shiny new object you just purchased. But do it one too many times and you might end up with 40%-50% of your salary having to be allocated for installment plans. Now your budget is stretched really thin. Chances are it’ll be very difficult for you to make it to the month end with 50% of your salary. Answer, more credit card spending. Right about this point is where you pass the point of no return with credit cards.

Might as well add some extra cheese

This is another way you damage your finances when you use credit cards. This is also purely psychological. Since you don’t actually spend the money in your wallet you get easily tricked to adding extras and supersizing your purchases. This is a very basic mistake but we all do it. One way to get around this is to always use cash for your day-to-day expenses like restaurants. Or at least use your debit card. It’ll have a slightly different feel when the money disappears from your wallet or the account right away.

So what to do?

In my previous article I concluded that credit card is only a tool and you can use it rationally if you use it rationally. But in most instances people use credit cards irrationally and it’s very easy to dig a big financial hole in a very small amount of time. So now I’m taking a more conservative approach and conclude that it’s better not to use credit cards at all. I think this is better for your long term financial health. And if you want some serious motivation to cut and slice your credit cards up you can have a listen to Dave Ramsey. He has very profound opinions on credit cards that I think everyone should listen to 😀

Read my other article where I discuss Pros and Cons of cred it cards: https://drinkupsl.com/2021/07/16/should-you-use-credit-cards/