Credit Card Debt and the Psychology of Spending
Most people who are feeling overwhelmed by consumer debt do not always understand how it managed to accumulate so fast and so high. Often, this is because consumers do not entirely understand why it is that they spend money or pay off less of their debt than they are able. At Malaise Law Firm, we are not just San Antonio bankruptcy lawyers who help you file; we want you to have a healthier financial future. In order to do this, you not only have to deal with your current debt, but you have to be prepared for the future.
Over-consumption, or spending beyond your means, is primarily due to two culprits: emotional shopping and credit cards that are essentially designed to keep you in debt. Both, however, are able to be controlled and overcome with the right knowledge and self-control.
- Higher income often leads to higher consumption. We spend more when we make more because we think that the bigger paycheck means that we deserve more; however, it does not mean that we deserve things that our out of our budgets.
- We live in a consumer culture. As Americans, we are constantly bombarded with advertisements for the newest trends and gadgets everywhere we go. These advertisements instill the belief in us that the newest product will make us – or make people believe that we are – happier, more beautiful, or more successful. Unfortunately, the positive feelings of new goods fade quickly, and we are left wanting more.
- As Americans, we value hard work and fiscal success. When capitalism and a Puritan work ethic combine, you get America. We not only believe that working hard is morally correct, but because large paychecks are often associated with hard work, we transfer those feelings of morality onto money as well. It is important to remember that your paycheck and your belongings do not reflect your worth as a person.
- We use shopping to fill emotional voids. Have you ever had a bad day and felt better after you bought yourself a present? Many Americans use shopping as a way to combat feelings of sadness, anxiety, depression, and loneliness. Next time you want to make an impulsive purchase, try waiting a week and reassessing if you want or need it enough to justify the expense.
Credit Card Company Manipulation
- Anchoring Payments: Credit card companies use a psychological tool called anchoring, that is, influencing a decision by strongly associating it with something else, in order to collect more interest and fees. By having very low monthly payments, they “anchor” our feelings about how much we owe to a much smaller number than our actual debt. We are then more likely to pay off less of our debt, even if we have the means to pay off a larger portion.
- Anchoring Limits: Spending limits are also anchored, although they are anchored to a higher number so as to influence our feelings about how much we can buy on credit. High spending limits and increased spending limits anchor our feelings about our budget to a larger amount than we can afford. This then causes us to spend more, and the credit card companies can then charge more interest.
- Future Discounting: It is a psychological fact that most people rate pain in the future as less harmful than pain in the present. This explains why most people are more reluctant to spend money if they have to pay in cash: the painful feeling of cash payment is immediate, whereas the painful feeling of credit card payment is an indeterminate date in the future, which means we think it will be less painful and thus are more likely to part with our money. Credit card companies also use this tactic to entice new clients. They offer low intro rates because, even though we know the rates will increase, when the increase is in the future, it doesn’t seem as bad.
Effects of Debt
You don’t need a legal professional to tell you that having chronic or large quantities of debt is stressful and can affect your personal relationships. What you may not know, however, is that the chronic stress caused by debt actually changes the way your body and brain work. It creates fear, which elevates defense mechanisms like adrenaline. While these changes are good for dealing with immediate or short term problems, they consume much more energy than normal processes and will eventually leave you fatigued, run down, and with a weak immune system. It is always smart to take good care of your body, but if you stressed out by your debt, it is even more important.
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A key factor in getting out of debt is identifying the reasons that you overspend so that you can avoid falling prey to them in the future. For example, if you know you shop when you are upset, try walking around a mall without your wallet, fixing something in your house, volunteering, or working on a craft project. It is also helpful to make a monthly budget and determine in advance how much of your credit card debt your are able to pay; this way, you are less likely to be influenced by the monthly minimum.