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Know Thyself: Don’t Get Screwed By Your Credit Card

credit card addictionMuch of the risk in credit cards is predicated on exploiting consumer psychology. The theory goes that it’s the weakness of our heads, not our wallets, that make us prone to debt, fees and overspending.

One famous study from 2001 showed that people were willing to pay up to twice as much for the same item when paying with a credit card instead of cash – known as the “credit card premium”.

Another study from Psychology Today, suggest that many overspenders then get into serious debt because they fall pray to “the pain of knowing… which may be so debilitating that individuals would rather ignore their debts than face them… may be too scared to face reality, and ‘sticking their heads in the sand’ only perpetuates the problem.”

So not only do we have to worry about spending more than we should, we also have to worry about spending more than we have.

So what to do? Credit cards in Canada are here to stay. Plastic is super convenient, and in many ways a necessity in today’s wired world. Moreover, many people prefer credit over debit because of points, miles, cashback, insurance and warranty coverage – all valid.

The answer, in part, is to use new technologies that allow you to inhibit and control your impulses. Here are just a few ideas:

Products & Services To Avoid Late Payments:

  1. Automatic payment for minimum credit card payment due
  2. Automatic payment for total credit card monthly balance (this is THE best way to avoid indebtedness)
  3. Notification credit card bill is coming due
  4. Notification credit card bill is due
  5. Notification credit card bill is overdue
  6. Notification when credit card payment is made

Products & Services To Avoid Spending More Than You Can Afford:

  1. Credit limit warning. Get notified when you come within a certain range of your limit
  2. Request a hard stop on your credit limit
  3. Large purchase warning. Get notified when a purchase is made greater than a sum you input
  4. Balance alerts
  5. Balance request texts. Get instantly notified of your balance when you text a request
  6. Notification of purchase. (Get notified every time a purchase is made. Just the reminder, triggers you to acknowledge you made a purchase)
  7. Spending limits for authorized users (spouse and kids)

It would also be nice if all credit card issuers created “transparency” apps. If there was actually a will, we could easily create mobile apps that would allow you to see in real time your monthly transactions, balance, credit line utilization, available credit, min payment due, bill due date, last payment received, scheduled payment, and credit score.

By using some of the strategies above, it will be harder to stick your head in the sand and ignore your credit card bill. It will also help you avoid accumulating debt, by forcing you to pay it down every month, and in the least avoid being late and having your rates jump.

While psychology tells us its perfectly natural to spend more and ignore our credit card debts, technology might be able to help us rise above our instincts. Get started now!

 

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