Do you struggle with overspending? Has this practice created a lot of debt that you now have to address? You may find yourself wondering how it happened. You didn’t feel like you were spending more than you could afford, but now it’s clear that that’s exactly what you’ve done. How did it happen?
One key question to ask is simple: Do you make most of your purchases with a credit card? If so, studies have found that you’re more likely to overspend than if you used cash.
Feeling the pain
Why will you spend more with a card? One of the biggest issues is that spending typically makes you “feel the pain” of giving that money to someone else. With a card, you’re less likely to feel it. This gets around your instinctive desire to save your money. You just feel that pain once a month — when you try to pay off the card — rather than every time that you buy.
In a world where you have to reach into your wallet, take out a pair of hundred-dollar bills, and hand them to someone else, you watch the money physically leave your possession. Anything you buy needs to give you greater fulfillment than those two bills. With a card, you don’t see the transaction, so you may literally buy things you would not have bought with cash.
Figuring it out later
Another major issue is the temptation to “figure it out later.” You’re just putting it off. In the moment, you know that purchase may not fit into your budget. But you want it. So you put it on the card and tell yourself that you’ll figure out how to afford it when you pay off the card at the end of the month. This distance makes the choice feel more acceptable.
Spending beyond your earning
Of course, credit cards also allow you to spend beyond what you earn. When paying in cash, you can only spend as much money as you physically have at any moment. With a credit card, you can spend up to your max, even if the max that the company allows per month is far more than you’d actually earn during that month.
If all of this gets you into serious debt, make sure you know what options you have to seek a fresh start through bankruptcy.