New study shows why we spend more with credit cards
The Credit Card Disadvantage
by Bill Hardekopf
Understanding Your Credit Card's Minimum Payment
Can You Really Afford Minimum Credit Card Payments?
One of the most common money-saving tips for consumers is to pay with cash instead of a credit card. Common sense and behavior analysis says you spend more with a credit card because it doesn't hurt. After all, it is somewhat painful to count out your hard-earned cash and hand it to someone else.
A study from the Journal of Consumer Research sheds further light on why we overspend with credit card payments. It may even help shoppers stay on their Christmas budgets.
The study "Do Payment Mechanisms Change the Way Consumers View Products?" shows that paying with a credit card increases the natural desire to spend as opposed to cash in identical purchase situations. It describes how perception and evaluation of products differ with cash compared to a credit card payment.
Consumers paying with a credit card are much more focused on the product benefits, and make a purchase based on superior benefits instead of the cost. They identify more with words that describe the benefits.
Consumers that pay with cash are more likely to choose an option based on cost, even if that option offers inferior benefits.
Not only do we spend more with a credit card, but we may not make the best purchase decisions when we pay with plastic. We may get caught up in the benefits promised in the advertising or possibly overestimate what we can get from the product. Plus, we buy things we don't need. This is likely magnified during the holidays. At this time of year, consumers may save more money and think more clearly when they pay with cash.
Credit card payers not only distort the benefits, they also make recall errors related to the costs. The study says it is harder to accurately remember the price if you pay with a credit card.
Consumers must remember that when we use a credit card for a purchase, this is real money coming out of our bank account for payment. The forms of payment may change, but the rules of budgeting and spending what you can afford will always stay the same.
To access the study "Do Payment Mechanisms Change the Way Consumers View Products?" click here.
Bill Hardekopf is CEO of LowCards.com, a site that simplifies the confusion of shopping for credit cards. It is a free, independent website that helps consumers easily compare credit cards in a variety of categories, such as lowest rates, rewards, rebates, balance transfers and lowest introductory rates. It also gives an unbiased ranking and review for each card.
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