Have you ever wondered why people splurge with cards even after knowing that it’s only borrowed money that they have to return to the bank someday?
Various researches on the profiles of credit cards owners and their spending patterns says that there are several factors leading people to spending more using plastic.
Here are the top five.
It’s very easy to use
Now, this is a no-brainer. In this age of booming e-commerce, you can buy anything under the Sun (and distant Saturn) online with just a click and by paying from the comforts of your home or office. Be it clothes, accessories, home furnishings, grocery or even vegetables. But the devil here is that you often end up adding few more items in your shopping cart on impulse just because it’s easy to use.
And once you experience this comfort, you just can’t let go!
There is no emotion of spending cash
There was a time you carried your hard earned cash in your wallet when you step out for shopping. You knew how much you could spend and when you had to stop. Temptation would flash in your face in the form of unwanted but beguiling shopping items, but you knew your limits! Also, when you paid by cash, for a moment you would get that empty feeling – that feeling of “your pocket being lighter”.
But when you spend with your card, you are less likely to feel the pinch of your hard-earned money getting frittered away. There are no emotions attached with credit card usage as there is no tangible or visible cue that you’re getting about your money dwindling away (unless you check your credit limit daily!), resulting in people often overshooting their budget by a mile.
You are rewarded for your spending!
Your Dad taught to curb spending in your childhood. Now, in your earning years, you are being taught to spend. Look no further than the reward points dished out by credit card issuers. The idea behind reward points is that you spend Rs 5000 and get Rs 100 cash back for the next buy.
This is sure to tempt you to spend more to reach that points level to claim the promised carrot. And you often forget that you are only allowed to redeem it while purchasing some other products only. The result? You end up buying many space fillers which you never use!
Small bites that are ignored
‘Even if you are nearing your credit limits, you can still buy,’ goes the assuaging one-liner from credit card companies. What they offer to make this happen are an additional cushion called ‘EMI options’ to spend more when you have almost exhausted your credit limit.
Sounds cool?
Not really! Don’t get your knickers tied up in a bunch over this one.
When choosing the EMI option, you are not only crossing your credit limits and allowing your debts to balloon, but you also end up paying more in return, as cards charge around 2% to 2.5% interest charges when they lend you through an EMI option.
Talk about jumping from the frying pan over the cliff into a boiling cauldron!
Focus on bang-for-the-buck
When you were spending using cash, your focus was on the money you were spending. An interesting study by a Journal of Consumer Research revealed that the focus of credit card buyers was more on the quality and benefits of the product they were buying and not the money they were spending.
Just imagine that you are at a restaurant and you have only cash in your wallet. You are happy with a plate of pasta, even though lobsters are mouthwatering albeit much more expensive. But, when you have plastic in hand, you are not worried about how much the lobster costs.
It’s the pleasure of buying that matters more. And, you often end up overvaluing many things you buy.
Credit cards are a convenient and recommended financial accessory to have. But don’t let your card get inside your head. When it comes to shopping or spending with your card, it is one area where you should let the mind rule over the heart.