Do Credit Cards Help You Cheat?

Many authors have talked about why we fool ourselves when it come to credit cards.  After all, it’s really a 30 day free loan, and in theory it should be a losing business model.  However, that’s not the case, as a multi-billion dollar industry has proved.

Unlike other theories, this video really helped me understand the issue at a behavioral level. Watch this TED clip to get the background.

It turns out we can trick ourselves into believing our cost is lower as we aren’t using cash.  The fact that people will steal Cokes so easily but not take plates full of cash is indicative.  His analogy of why people feel they can steal a pen from work so easily, yet they wouldn’t steal actual cash, shows us that people can weight different measures differently.

What should you do?  You’ve got to visualize that credit cards are cash.  One way to do this is to switch to debit cards for a month.  See how you “check” yourself before you spend.  Then, switch back next month.  If you get out of the good visualization habit, then switch back again.  Do whatever you need to do to keep this up.

Next, don’t succumb to peer pressure spending.  This is easier to do right now as the pressure is to save – thanks to our economic conditions.

Remember that credit can be a virtuous or a vicious cycle. It’s best to start watching your credit score as that will often serve as a reminder to you and keep you on the road to better credit management.