Are you really in control of your credit card?

  • Business
  • Saturday, 23 Jun 2012

CREDIT cards have become an essential part of our lives. They give us a sense of security and convenience. We use them as often as possible and some people even use them instead of cash. Truth is, we can't leave home without them.

A credit card can be useful if we learn how to use the card in a controlled manner. Alternatively, if our emotional urges or irrational thoughts lead us to using the cards in an impulsive manner, then we can get ourselves into trouble financially.

People have found a multitude of ways to use their credit cards to delay paying with hard-earned cash. And when credit card usage gets out of control, people end up in debt. Adults of all ages are getting into credit card debt while kids think that credit cards are easy money just swipe!

How do we stop this spiral of overspending and growing debt? And how do we avoid credit card traps? There is no short answer. Every individual is different. We have our own peculiarities, own unique mindset, personality, behaviours and attitudes.

Even identical twins could display different behaviours when it comes to money and credit cards. Our age, life stage and lifestyle, environment, family nucleus and career status create different spending behaviours, and affect how we view credit cards.

I draw from a wide range of published research studies and books on neuroscience, behavioural finance, studies of human behaviour and attitudes, as well as my own research project on credit card mismanagement attitudes to help you understand the reasons for your credit card mismanagement and find suitable solutions.

Credit card & attitude

There are different attitudes towards credit card usage expressed by the participants from my survey and these lead to a mismanagement situation.

The most common attitude of “treating credit cards as cash and buying into the convenience of credit cards” points to the participants' cognitive behaviour of thinking that credit cards are like cash (or even better than cash) even though there are consequences of credit spending that leads to debt.

The attitude towards credit card convenience is caused by the knowledge that they can spread their credit card debts over several payments or months. At the same time, they have the option to pay a minimum amount.

Another factor that leads to the mismanagement of credit cards is “the needs and wants, unexpected life changes, career and business problems, family and relationship issue” scenario. This group of participants have the motivational and emotional attitude that they have to fulfil a “current psychological need”.

There are also incentives and rewards that motivate credit card spending. Credit cards become a “spending-facilitating stimuli” because card issuers want cardholder to use the card more often. The credit-spending behaviour is, therefore, associated with the incentive-motivated attitude.

Based on the three factors or attitudes above, I am able to connect the inter-relationship of cognitive attitude, emotive behaviour, incentive-motivated attitude and cognitive dissonance-rationalisation.

Credit-card spending behaviour is a combination of different attitudes. Our irrational thoughts and emotional urges, how they are intertwined with each other, and how they are often motivated by rewards and incentives lure us into swiping our cards.

Participants in the research rationalised their behaviour to use the credit card since:

● they think a credit card is similar to cash (or even better);

● they want to fulfil their psychological needs;

● they are motivated by rewards and incentives to use the credit card;

● they did not have money to spend; and

● they make minimum payments to satisfy the credit card payment obligations.

It was obvious that participants consistently rationalised their decisions to delay the settlement of credit card debts. As long as they are able to “juggle their cash flow to pay the minimum”, “apply for new credit card” or “apply for high credit limit”, paying off the debts would not be a priority, unless there is a crisis; financial, emotional or otherwise.

Our mental dissonance, or conflict, is the biggest “culprit” because it makes us rationalise our spending behaviours. In fact, our ability to rationalise spending behaviour doesn't actually help us control our urges to spend. It instead compounds the credit card spending attitude.

Both our cognitive dissonance and “vicious cycle effect” of our cognition-rationalisation attitude actually leads us into serious credit card debts.

If we are unable to manage and control the “mixed bag” of irrational thoughts and emotional urges, we could end up a compulsive buyer, shopaholic and potential credit card bankrupt.

Conscious swiping

On a macro level, credit card spending has impacted natural resources and mother nature. You and I may not realise the snowball effect of the supply chain when we consume a product or use a service, but if we measure the credit spending of several billion people living on this Earth, the effect is massive.

We can make the world a better place by becoming a conscious consumer: save more, swipe less; cultivate collaborative consumption and sharing. A collaborative lifestyle system is based on people with similar needs or interests banding together to share and exchange ideas and skills, without having to spend beyond one's financial means. We end up saving more when we embrace a green frugal life, be a minimalist, and appreciate what Mother Nature has given us.

The bigger picture

The picture starts with us and an understanding of how our behaviours make decisions. Once we understand the process, we can move to regain control of our financial lives. By learning how to rewire our thoughts, and therefore, spend less, we get rid of debt and increase savings.

By learning how to find joy in consuming less and avoiding waste, we slow down the depletion rate of our natural resources.

Carol Yip, founder of Abacus For Money, believes that if people understand their money mindset, behaviours and money psychology, they can be financially happy and successful. She actively promotes financial literacy and intelligence within families and for women, youths and retirees. Email her at

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