Dubai: You walk into a shopping mall to buy something you really need, but thanks to your credit card, you inevitably end up buying more than you thought you would.
By the time you leave, you realise your card has been swiped a number of times, but you’re not worried just yet.
By the end of the month, when you receive your credit card bill, you realise you have spent more than you could afford.
Researchers who evaluated the psychological impetus behind impulse spending say spending via credit or debit cards is one of the main reasons people tend to overspend.
The fact that consumers don’t feel physical cash leaving their hands also plays into the tendency of some to use plastic more often.
Rampant usage of credit cards can sometimes make you fall into an endless cycle where you maximise one credit card and get another one because you are unable to pay for the previous one, until you finally fall into debt.
Studies have shown that people are more willing to pay higher amounts for the same item when using credit cards as opposed to paying in cash.
Ahmad Shams Al Deen, from India, said he relates to this as he finds himself overspending when he carries his credit card and doesn’t have enough money to buy things. He also said he always accumulates credit bills which he sometimes cannot pay on time.
“It’s been this way for the past seven years. I keep falling into the same problem and have no idea how to clear my balance sometimes. When you have a credit card, you are tempted to buy more and more because you get the feeling that you are not paying at that moment and that you can pay later,” he said.
Al Deen said he tends to go out of control when carrying his credit card and he has stopped using it lately, relying instead on hard cash for his purchases.
Carey Kirk, counselling psychologist at LightHouse Arabia told Gulf News that due to the absence of payment pain, people are less likely to thoroughly evaluate an item and their need for it before they purchase it, making it more likely for them to indulge in impulse buys. “When we buy more impulsively, we are paying less attention to our spending and are more likely to lose track of how much money we have spent. When we spend cash, there is emotional pain associated with handing over our money and concretely knowing we now have less in our wallets. With cash, the exchange of physical money for goods is visible, tangible, and immediate,” she said.
In addition to money leaving our wallets, she said that when using credit cards, the fact that credit card balance payments are not due immediately is another reason for overspending.
“This lag between purchasing an item and having to settle our credit card bill further distances our association between using a credit card and spending money.”
Rajesh Sharma, an investment consultant, said the ease associated with using credit cards and the feeling that making small payments via a credit card will not make a big difference, tends to make people fall into the habit of overspending.
“Small expenses like Dh5 to Dh50 do not get visualised when using a card. When it’s the end of the month people realise that their card expenses are not payable and, once this takes place, it is too late to avoid late payment fee,” he said.
The same is true when using a debit cards, said Sharma “because there’s immediate loss when cash is handed over, but when a plastic card is swiped, it doesn’t give any immediate feeling of loss. Even when a message is communicated to the person, by the time they comprehend that the money is gone, the damage has already been done and cannot be reversed”.
Caline Boghos, from Lebanon, said that before she switched to only paying in cash, she noticed that she overspent with no regrets, but when she became independent of her parents at the age of 26, she realised that she needed to control her spending behaviour.
“When carrying cash, I know how much I can spend, but when I carry my card, I feel that as long as there is money [balance], I can still spend. Now, since moving out, I use my debit card only to withdraw the amount I need,” she said.
Caline who has started using cash said: “I have become more limited in what I can buy and it has helped me control my spending and save money for other expenses”.
Tips and advice
Kirk said using cash for purchases can definitely make a difference in spending, but is not always feasible because carrying around large sums of cash can be risky as there is no protection for lost or stolen cash as there is for lost or stolen cards.
According to Preeti Harrison Bhambri, Managing Director at MoneyCamel.com, a property and finance portal, the way around this problem could be people using their cards as they would use cash and being conscious of the amount they are spending.
“Credit cards should be used as a means to pay for planned expenses or needs. Do not create new expenses just because you want to avail of a discount/loan plan offered on things you want. For example, you can use your card to pay for fuel, maintenance bills, and electricity bills and enjoy the reward points as a perk, but avoid making random expenses for things that are not in your budget plan such as jewellery, furniture or the latest phones and tablets just because there is a buy now pay later scheme.”
She also said credit card users should keep a tab on their outstanding and always pay the card bill in full.
“Knowing one’s spending limit in advance will help keep expenses in check. You should also use the borrowing power calculator to know the maximum amount you can borrow based on the maximum amount you can afford to pay every month.”
Amit Mitbawker, a senior financial planner at Acuma, said cards are handy as a payment method and can save a lot of trouble arranging for exact change, but credit card holders, in particular, must consider many factors.
“A person should not have more than one credit card because there is no justifiable logic for this. They should monitor their card balance every weekend and make sure it is never more than the cash available in their bank account to pay it off in full,” he said.
He also said that if credit card holders are not sure about the balance on their card being within their limit of payment, they should not use the card.
“They should watch and be careful when charging small amounts to the card because these can add up. It’s the same with big amounts. The simplest way to handle money being spent weekly or monthly is to activate online banking login and check it every weekend.”
To get rid of credit card debt, he said, debt stacking is the best way to solve the problem. “This means if you have maxed out three cards, for example, stop payments on other cards and pay off the card with the smallest outstanding fully and cut it up.”
