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Your Brain On Credit Cards And What You Can Do About It.

When it was released in August 2017, the Chase Sapphire Reserve card caused such a frenzy that Chase ran out of physical cards to dish out to applicants. The Sapphire Card—which boasts a hefty $450 annual fee—had been the topic of credit card blogger fodder for months thanks to its 100,000 point sign-up bonus and high point-to-dollar earning ratio. It was a huge success for Chase.

Point chasing has become a business and an obsession for many people, with sites dedicated to explaining which credit cards to apply for when in order to yield the most lucrative rewards. Point chasers blog about international vacations with first-class airfare and five-star resorts, all paid for with points.

As a result, credit card rewards offerings are on the rise. According to a study done by WalletHub, the value of credit card sign-up bonuses has increased 300% in the last six years. And people are adding more and more plastic to their wallets as a result.

Proponents of “point hacking” argue that there is nothing to lose. Pay on time and in full, and you’ll be rewarded for purchases you’d make anyway. That makes sense, but doesn’t take into account the biggest enemy to your spending habits: You.

Your Brain on Credit Cards

Credit cards aren’t inherently evil. While banks certainly profit off of customers who fall behind on payments, banks also really want responsible customers who pay on time and will grow to use other services like mortgages or financial advising.

Responsible customers argue for in favor of cards because they only allow themselves to spend what they can afford. However, as it turns out, that number may be different depending on if you’re paying with cash or credit.

Several studies have been done on the effect of shopping with credit cards. In summary, they’ve found:

  • In some instances, people are willing to pay twice as much for the same item when paying with card over cash.
  • People shopping with credit cards focus more on a product’s features than price.
  • Shopping with a card makes people more willing to spend on impulse purchases.

Credit cards trick our brains into buying more and make it harder to track cumulative spending. They stay in our wallets no matter how much we spend, while handing over cash means watching it disappear from our wallets.

Credit cards aren’t the only problem. More purchasing power is moving to our smartphones—an even further step away from the physical and mental weight of paper money—which is sure to amplify the overspending effect. The challenges of managing budgets, cash flow, and avoiding overdrafts are major reasons why millions of Americans use budgeting tools and apps like Dave.

What You Can Do About It

Carry cash. There are a lot of reasons you’ll argue against — it’s easy to lose, makes your wallet too bulky, ATM fees, and so on — but that’s the idea. Credit cards are convenient. Cash makes you think. To get started, try leaving the card at home for just one month. Then, calculate how much you spent without it and use that number as a baseline for your budget even when you’re using your card.

Or try the stranger trick. Any time you’re about to make a purchase, picture a stranger offering you the product in one hand and the cost of the product in paper money in the other. Which would you take? If it’s the paper money, you should probably put the purchase back. It’s not worth it—it’s just your credit card burning in a hole in your wallet.

Zach Robbins

Zach has over ten years of experience in financial services, recognized on Inc. 500 lists & recently featured in ConsumerAffairs, Forbes, GoBankingRates, Huffington Post, and U.S. News & World Report.

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