Plastic is powerful. Credit cards provide instant access to money you may not even have.
On one hand, that’s great for obvious reasons. They’re convenient, help smooth out financial bumps between paychecks, come with consumer protections, and beat riskier alternatives like payday loans.
On the other hand, researchers never stop pointing out how risky they can be. And we’re not very good at recognizing or avoiding that danger. Says The Atlantic:
We don’t save much, and we’re awful at projecting future earnings, spending far more than we’re able to pay back quickly. Lower-income people, consumers who are worse at math, people who self-report emotional instability, introversion, or materialism, have all been found to get into trouble with credit cards.
It’s easy to say, “that doesn’t apply to me.” But it’s harder to brush off research that applies to credit card spending in general. The Atlantic made note of several studies.
- A 2001 MIT study found that people with credit cards bid nearly twice as much as people with cash at an auction for basketball tickets. Plenty of other studies have shown that people are more willing to spend, and willing to spend more, with credit.
- Credit cards make it so easy and painless to spend that we actually forget how much we’ve spent and some of what we buy, University of Colorado professor Dilip Soman found. The antidote: Track expenses and pay off debt quickly, so your brain associates that cost with your spending habits.
- A 2011 paper in the Journal of Consumer Research found that credit cards make us more likely to splurge on fast food, sweet treats, and other unhealthy things that we tend to buy on impulse. We’ve been saying this for years.
- Credit cards worsen income inequality. They “provide the illusion of a better life” for people who can’t really afford it, The Atlantic says, and can trap them in a cycle of debt and bad credit. Studies have also shown that the fees credit card companies charge merchants push them to drive up prices for everyone, the magazine says.
If you’re already in trouble with credit cards, check out the links below for help.
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