The Subtle Psychology of Credit Cards and Overspending

Even when we know they can be dangerous to our finances, many of us still use credit cards. But why? Protect yourself by knowing why controlling spending is harder when paying with plastic.

Even when we know that they can be dangerous to our finances, we still feel drawn to use our credit cards. In fact, in today’s fast paced, high tech world, it seems almost impossible to live without them. After all, you don’t want to be that person who holds up the line by paying with cash or a check.

It’s certainly true that credit cards are easy to use. You just swipe or insert your card, sign your name (sometimes), and away you go. It’s simple, quick, and easy. However, that convenience may come at a price.

If you’ve ever struggled with credit card debt, you probably wondered how it happened. You don’t see how you could have run up that high of a balance. It certainly didn’t feel like you were overspending at the time. It was almost like there was something else influencing your behavior.

Utpal Dholakia Ph.D. wrote an article called “Does It Matter Whether You Pay with Cash or a Credit Card?” for Psychology Today.

In his article, he discusses some interesting behaviors that researchers have found about how consumers use credit cards.

1. Consumers feel less pain when they pay with a credit card, so they spend more money.

The “lower pain” seems be related to (a) the separation in time between making the purchase and having to pay the credit card bill and (b) mixing different purchases together so the consumer doesn’t equate the credit card bill payment with any one particular purchase.

2. Consumers purchase more unhealthy items and make more impulse buys when they use credit cards.

Researchers found more unhealthy food items like cookies, ice cream, cakes, and pies in the shopping baskets of consumers who were paying with a credit card. The researchers attributed this behavior to increases in “impulse buys” that were facilitated by credit card use. The “pain of payment” can help curb impulse buys. Since credit cards reduce the pain, impulse buys go up.

Related: 10 Reasons To Use a Cash-Only Spending Plan

3. Consumers place a lower value on items purchased with credit cards.

In one study, researchers sold a university logo mug for a discounted $4.95 price. Afterward, they asked the purchasers what would be the minimum amount that they would take for their mug. Those that had paid cash wanted an average of $6.75 for the mug versus an average asking price of $3.83 for those who had paid with a credit card.

The subtle psychological effects of using credit cards may get even more powerful as technology develops ever more seamless and painless ways to pay, like paying with your cell phone. The development of convenient payment methods is not a bad thing. Like most technology, it can be used for good or for bad.

The challenge is to understand how that convenience impacts your behavior and your related financial condition.

Remember that the credit card company (and vendors) makes more money the more that you use your card. They have financial incentive to make it as easy as possible for you to increase your use.

Before you pull out that credit card, or cell phone, just be aware of the subtle psychology of those credit cards and their impact on your personal finances.

• Paying Down Credit Card Debt Faster
• 3 Reasons To Stop Using Credit Cards and Start Saving Some Cash
• Escaping Credit Card Debt: $30,000 Conquered
• The Emotions Behind Buying Stuff

Reviewed August 2023

About the Author

Joel Fink is a retired CPA and financial services executive living in Dallas, Texas. He enjoys writing articles that help real people with simple ideas to manage their money and improve their lives.