What if we told you that credit cards stimulate overspending habits? Let’s be honest. We love credit cards. We love plastic because they let us pursue goals or wants closest to completion. If we want it, we can get it. However, are we bewaring of the fact that the very ease and access that we love about our credit cards, can lead us down the debt trap without much of a warning?
"I have so much credit card debt"
"How did I work up so much credit card debt"?
Often people find themselves looking at how to clear their credit card debt and wondering if they should consider consolidation. Financial advice and help is advisable and easily available to manage credit card debt. However, have we given some thought to restraint; nip the problem at the bud before it spirals out of control?
The idea behind Credit Cards is built upon the most predictable aspects of human psychology; precisely what makes unchecked credit card usage potentially damaging and dangerous.
Plenty of experimental research exist and confirm that we are often willing to pay more for something when using credit cards than when using cash. In fact, research exists to confirm that spending differences between tightwads (who chronically find spending painful) and spendthrifts (who don’t find spending painful enough) were smaller when people were required to use credit to make purchases than when using cash.
The explanation lent is the anaesthetisation of the pain of paying cash i.e. we feel less of a pinch when paying with a credit card. If that wasn’t enough, research also suggests that credit stimulate desire/wants.
At Guarantor My Loan we receive many loan applications for consolidation of credit card debts. As it turns out, most applicants are in disbelief with how large their debt grew in little time.
One common reaction to credit card debts is to continue making the minimum repayments required by credit card companies. We offset the fact that this does not take away the original debt we still owe. So how do we manage our credit card debt and spending habits?
1. Budget and planning: if we have money in the bank you can pay back your dues before the credit card company can charge any interest. If there are purchases you want to make with credit, plan well in advance and allow yourself a budget- perhaps keep money in a savings account? This way you will be better prepared to pay back your dues in time and not incur any interest payments.
2. Prepare an action-plan: take stock of your credit situation before you start paying of your debts. Until you know where you stand, you will never find yourself in good stead to manage debt. Write down your total debt and interest rate on every card you own.
3. Get a better deal: call your credit card company and try negotiating a lower interest rate, even if that maybe a single percentage point. You will find a big difference over time in managing your debt. Your credit history and other factors may come into consideration, but a simple phone call and a polite request is always worth the effort.
4. Set your goals and stick to them: One common and cost-effective approach to paying off debt is to focus your extra cash on paying off the highest interest credit cards while paying the minimum on others until the largest interest rates are paid off. You will find it helpful to set goals on a monthly basis to stay on course, plan for extraneous factors that can derail your plan, and also track your progress.
5. Leave cards at home: this one is a desperate bid, but particularly helpful when you find yourself in a dire situation. Leave your cards at home and plan to pay in cash as much as possible. Remember how psychology got you into this mess in the first place? Don’t cancel your cards, but leave them away in order to avoid temptation and frivolous decisions.
It all starts with you. Credit card debts won’t build up in the first place if you don’t let it. This starts with being mindful of the biasing effects of credit cards, which can help curb overspending. Psychological cosying up to credit card debt can lead you to lose focus easily- I’m already in debt of over £3,000 and another £100 can’t make it worse. Well, as a matter of fact it can only make it worse.
For a better picture of your credit card debt reality, use this calculator.
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