Question: How Do Credit Cards Make It Easier for Us To Overspend?

A good article highlighting the psychological differences between buying with credit vs. cash and three ways that credit cards can lead to overspending:

  • The credit limit is usually a multiple of our monthly income. “With that high credit limit, it is easy to spend too much.”
  • Without the pile of cash in front of you getting smaller with every purchase, it is easy to spend more than you want. Seeing those bills disappear from your wallet hurts.
  • The minimum payment is usually only 2 percent of the balance. “That makes it very easy to make a small payment today to get through the month and worry about the debt tomorrow.”

Here is a great three minute video that demonstrates the third point with a pitcher of water (when I showed this in my personal finance class, students were amazed and didn’t understand how consumers could be so “dumb”):

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Check out this NGPF Activity, Calculate: Paying With Interest