Credit Cards
I have been working in the credit card industry for around 6 years, and I think I can fairly well recognize its benefits and risks. Yes, credit cards do have great benefits to them, and I believe that in future we will increasingly be moving towards cashless payment methods worldwide. But, if you don’t know how to handle credit cards, and not being aware of the psychological effects associated, they can be dangerous.
Did you know, that a person paying by credit card tends to spend 25% more that a person paying in cash? The main reason is that when money does not pass through one’s own hands, one loses a realistic feeling for the money spent. 100 Dollars on paper, or in the mind, has a different psychological value than 100 Dollars held in cash in one’s hands. In addition, since the credit card bill has to be paid next month only, credit cards give a feeling of having purchased an item but not having spent the money. The surprise then comes in the following month, when the expenses are debited from the account, again increasing the need to buy items using the credit card as current month’s budgets are exhausted at the beginning of the month.
Being quite aware of the danger that credit cards can cause, I handle credit cards as follows:
- Regardless of my financial position or my income, I will possess no more than one single credit card.
- I will use that credit card only when other payment methods are not available (e.g. some internet payments, car rentals, hotel reservations), or when I need an item immediately and it cannot be paid by other means at the moment.
- At any given month, I will spend no more in that entire month than the amount that I would have been able to save in the next month.
