Ask the Readers: The Psychology of Credit Cards?

Cory is a young man who wants to do the right thing. He's been making smart financial choices, and he wants to continue to do so. But he's worried that using his credit card is too easy. He's come to ask GRS readers for help:

I'm 21. For three years, I've had a debit card and loved it. No more borrowing my parents' credit card to make purchases! I can use it anywhere, just like a credit card. I have a pretty good memory, and almost always know exactly how much money is in my checking account, usually within a dollar. If I make a purchase, I automatically update my account total in my head, and whenever I actually check my account balance, I'm never shocked at what I see.

A couple of months ago, I decided to get a credit card and start building good credit. I've paid the bill diligently each month, but since I'm using credit, and not taking money out of an account, I just can't seem to keep track of how much money I have vs. how much I've charged on the card. Each time I make a payment, it feels like I'm giving up more money than I should be, because all month long I've been thinking that the money I actually have is the money that's in my account, not considering what I've charged on the card.

I know this is just a psychological thing, but I was wondering if your readers had any tips on how to help? I feel like I'm spending somebody else's money until that bill comes, and I'd rather feel like I'm spending my own.

This actually causes me problems, too. One reason I got into trouble when I was younger was the lack of immediate feedback about how much had been charged to my credit cards. The spending was invisible and painless. It felt like free money. (Financial guru Dave Ramsey likes to say that when you pay cash, you can “feel” the money leaving you.)

Since I returned to the world of credit last year, I've been diligent about practicing good spending habits. I do everything a responsible credit card user should. All the same, I don't always know my current balance, which was something I did know when I only used a debit card.

If Cory wants to feel more in control of his credit spending, he might consider the following:

  • Check your balances often. Almost daily, I visit my accounts online. This not only helps me keep tabs on my spending (and earning), but it also helps me stay vigilant for possible fraud and identity theft.
  • Use money management software. Last year, I shared a simple trick for tracking credit card expenses in Quicken. When I process my receipts every weekend, I create a placeholder transaction that shows I've already paid my credit card expenses. (Click that link for more info.) This helps me with my mental accounting.
  • Set cash aside immediately. Both ING Direct and my credit union allow me to have multiple subaccounts. If I didn't already do the Quicken trick, I might consider moving cash from my checking account to a designated savings account whenever I used the credit card. This would prevent me from spending money I didn't have and get it ready for me to pay the bill.
  • Pay for large expenses with the credit card, but use the debit card for everything else. It's easier to remember a few big expenses than a bunch of small ones. If your want to keep the numbers straight in your head, only use your credit card for major purchases.

What about you? Does spending with a debit card feel different to you than spending with a credit card? Do you ever worry that you spend more than when you use cash? Do you have any tricks for keeping track of how much you've spent? What advice can you offer to Cory?

More about...Credit, Psychology

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Leslie
Leslie

I not only check my credit card balance on line frequently but I actually pay it every week. I do financial stuff while my kids are napping on Fridays. I pay bills, update the budget etc. At that point, I check my credit card balance and pay it every week. That way I not only know what is on there but it is paid off right away. Less of a lag time and it is harder for me to conveniently forget what I charged.

Eric J. Nisall
Eric J. Nisall

I would like to commend Cory on recognizing that he needs to build a credit history, and at the same time wanting to remain responsible with his finances. JD had 2 very important points–use financial software and check your balances often. It is very important to be financially organized, and using a software program such as Quicken will not only help you in that regard but with the wealth of reports that can be run, you can have many different looks at your financial situation at any given time. One thing that Cory may also do is to contact the… Read more »

Sue
Sue

My trick is to go home and pay the credit card the amount I just charged to it before I get the bill. I use online banking, so it’s easy. My cc is also through my bank, so it shows up on my banking profile, and it’s easy to keep track. I use my credit card for online purchases, rarely in store. BUT….if you’re having a hard time tracking expenses with a credit card, DON’T USE IT OFTEN!!!! It’s too easy to get into trouble!

Anne
Anne

I no longer use credit cards, but when I did I used a trick my Mom taught me. First, you should be keeping an updated checkbook register to track your debit card and check spending. I’ll assume you know how to do that. 🙂 (I’m regularly surprised by the number of people who have NEVER used a register — paper or electronic!) Second, write your credit card spending in your checkbook register. Every time I purchased something with a credit card, I would write “DRAFT” in the code box, then of course the date, a description, and the amount. Keeping… Read more »

Diatryma
Diatryma

I use my credit card for online things only. I don’t buy a lot of stuff online– it’s mostly plane tickets and Giant Microbes– so my bill never gets huge. I pay it when it comes. I don’t need to check the balance because I know before I buy something that the money is there. It seems like the question is how to use a credit card regularly without using it crazily. Why not declare one class of reasonable expenses credit-card-able? If groceries are a stable expense, use the card for that and nothing else. Or gas, or something that… Read more »

Sam
Sam

Although I’ve always paid my credit card bills in full every month, when I was younger I did have to borrow money from my parents to do that a few times. What really helped me out was using a money management program (MS Word), daily inputting my receipts. I could see very frequently where I stood in terms of money. Not only did this make sure I never spent more than I earned, it had some side benefits as well: It became a game and fun to see how high I could get my accounts. Even though I was only… Read more »

bRobert
bRobert

As long as Cory realizes that credit cards are a trap, and maintains a healthy fear of using them, he will be doing much better than I did at his age. This has already been pointed out, but the only way to keep ahead of it is to track every purchase the same way he should be with a debit card. Treat it like cash and pay it immediately. Save up cash ahead of time for the big purchases, pay with the credit card for the insurance benefits that the cc companies provide, then pay it off immediately. Always hold… Read more »

Sarah
Sarah

You do not have to use a credit card to build credit. This may not be the method for you. Consider a secured CC, having the utilities in your name and then in turn paying them ON TIME, a car loan………
Explore your options! A little research on what actually makes up a credit score may be enlightening!

Jamie
Jamie

Use an envelope budgeting system like Mvelopes (now Finicity) or Crown’s Money Map software. It automatically sets the money “aside” for you as you record the transactions. I also caution against spending based on “what’s in your account” as he describes how he uses his debit card. Maybe he doesn’t have much in the way of bills such as large periodic insurance premiums, annual car registration, but surely he has rent. You can’t spend based on “what’s in the account.” You have to budget to ensure the money is there when the bill comes due. No matter what means you… Read more »

Anne
Anne

I’m with bRobert… I wasn’t afraid enough of what credit cards can do to you, and it caused big problems for me later on. Make sure you don’t fall into the trap of spending money you haven’t received yet. I was always spending a month into the future, which was fine when I was employed. When I lost my job, though, I had a month’s worth of expenses on my credit card and no way to pay for them. You HAVE to treat your CC like a debit card, or you will dig yourself into that same hole.

Kyle
Kyle

Never wait for the payment due date, is my tip! I find that the longer I let the time go between making a purchase and actually paying cash money for it, the more I am likely to spend. I generally pay off my credit card weekly. I did also keep my cards in my desk drawer except when I needed them for specific purposes for several months, which helped break me of the habit of reaching for them for every little purchase. I think different things work for different people; registers are great for some, but I find writing things… Read more »

John
John

I agree that the way to go is to enter all of your charges in financial software each day or two. On Microsoft Money, the “Account List” will show you all of the accounts and the net balance, making it easy to see what you’ve spent vs. cash on hand. I also agree that it’s important to check the accounts online frequently to watch for errors or fraud – I use mint.com to make it easier, rather than having to log into each one individually. As far as whether using a credit card makes me spend more, I don’t believe… Read more »

Christopher Hylarides
Christopher Hylarides

If you’re worried about losing control, keep a separate high-interest savings account stacked with cash equal to your credit limit. This way if you ever go on a binge, you’re at least doing it with savings.

Pat
Pat

Using a debit card is a good idea but keep in mind that every time you do so you are exposing your PIN number to networks that are often not secure. There have been cases of even large retailers (Target I think) having systems that leave your PIN vunerable at some point during the transaction.

Just something to think about.

April
April

We put everything possible on our card for the airline miles, and pay it off at the end of the month. We did get into trouble last year, though, because we had some major expenses and no emergency fund. Lesson learned. We have savings now. “Does spending with a debit card feel different to you than spending with a credit card?” Yes, because I’m thinking about the airline miles we could be getting! I almost have two tickets to Europe, which cost about $2500 the last time we went. “Do you ever worry that you spend more than when you… Read more »

KC
KC

The problem isn’t the credit cards its the spending. I can certainly understand how credit cards make it easier to spend. But every time you buy something you have to ask yourself if you really need it. Also stay out of stores. The best thing I ever did was move to the city. There are no “big box” retailers around me. I have to drive 15 minutes or more in heavy traffic to get to one. So usually I’m not willing to do that unless I really need something. Stay out of stores and when you do have to buy… Read more »

elisabeth
elisabeth

I like the idea of the “float” on my credit card purchases — for some reason it gives me a little thrill to wear something before I’ve paid for it — so I’m definitely not in the pay your cc bill every week group. Instead, I keep my receipts in a separate notebook for each card I use (two cc’s and two department store cards), with a running total for myself to check against the bill, even though I pay the complete bill every time. I do agree with the idea of not using a card much though; unlike people… Read more »

Christy
Christy

Here is a really low tech trick based on the check register idea but its more portable. 🙂 Take a piece of cardstock and cut it to credit card size. Keep it in your wallet behind the card. Everytime you make a purchase, write it down so you have a running total. When you pay it off, zero it out and start again.

Best of luck keeping out of debt!

JenK
JenK

My credit card spending decreased when I started going over each bill in detail and rating how much enjoyment I got from each purchase. (Yes, this is similar to Your Money or Your Life’s method of rating all purchases – which I was also doing – but I kept doing it on CC purchases after I got slacked on tracking cash.)

Since getting married, we go over the credit card bill together. Which means that if it isn’t something we BOTH think is worthwhile, I generally don’t buy it.

Oh, and no, I don’t carry a balance.

Julie
Julie

My advice to Cory: if you can already keep track of your account balances in your head (good for you), simply subtract the credit card items the same way you would subtract the debit card items. True, your mental balance might not match the balance actually in your account, but if your mental balance has always been accurate, then trust that. Keep subtracting the amounts from purchases as you buy them, and then just keep the total level when you take out the money from the account to pay the credit card. At that point, the total in your “real”… Read more »

Liz
Liz

If you are obtaining a credit card only for building credit, than only put 1-2 transactions on it per month. This way the bill is not large and you will still be building a credit history.

Nathan
Nathan

I personally treat my cc as another account like I would my checking or savings account. when I make purchases I mark them down in the software (buxfer.com currently) and check the cc site weekly to balance. I then pay the cc off at the end of the month. I make all my purchases and pay bills with my cc since I can take that money and put it in a savings account to earn a little interest. this doesn’t count for much with each purchase, but overtime pennies add up (GRS anyone?). This only works if you pay the… Read more »

Ken Staude
Ken Staude

I’ve done a few things differently since getting out of college about 7/8 months ago and actually having money. As mentioned above I’ve done some of the following: -Set up ING Direct and paying into savings first every 15th/End-of-month $100 each. Adding extra money if I have it. -I’ve been using Mint.com to track my expenses so I can check from work/home/etc to see my Debt.vs.Cash and where my money is. -I just started this trick as well, using cards is more convenient for me (might be bad) but I put my debit card in front of my CC in… Read more »

Helen
Helen

You could write each credit card purchase into your checkbook register and “deduct” the money from your account balance. Save your receipts and do it every night, or do it once a week, whatever feels right based on your spending patterns. Seeing it in writing is powerful, even if your memory is normally great. Double check against your online bank statement, so you can ground yourself by saying “OK, this says I have $500, but I need to ignore $100 of that because it will go to what I bought on credit.” Ideally, you would do this recording trick with… Read more »

Alex
Alex

Here is a trick: Lock your credit cards in a drawer.

I got a credit-card along w/ my first job out of college, and I found I wasn’t as careful about spending as when I used debit/cash. I quit using the card, and though I miss the bonuses, I know I spend less now than before.

Don’t get trapped into a credit card! Cash is the way to go!

Michele
Michele

I’m the exact opposite–I don’t like debit cards. Tracking my exact balance all the time would get irritating. I know I’m fine as long as I’m staying within my limits in each budget category for the month. I may not be able to rattle off exact numbers, but I always know my bill will be below X.

cherie
cherie

What a timely request for me! Just last night I was having a little bitty nervous breakdown because I realized I had too many credit cards. After ahuling ourselves out of monstrous debt a few years ago we’ve still used them for as much as possible [hubby cannot handle cash and I like the tracking of expenses on it – no effort from me] but have religiously paid down the full balance each moneth without trouble. But I only had two cards I really used all that time. Of late all the great ‘offers’ have increased that manyfold – and… Read more »

Nicole
Nicole

This seems to be a budgeting issue, rather than a credit card issue. The change from debit to credit card didn’t cause the problem – it merely revealed the problem, which is that Cory does not have a clear spending plan. When he was using the debit card, the problem was not readily apparent, because “seeing” the money come out of his account created a psychological barrier to over-spending. Now that barrier is gone. My suggestion is to make a budget and track spending on a daily basis – keep track of where every penny is being spent (there are… Read more »

Rachel
Rachel

I don’t have something special I do for CC – but this trick I use for bills that aren’t due for a long time might help. I split my bills up by paycheck #1 of the month and paycheck #2. I plan to take $200 out of that #2 paycheck for the electric bill that I don’t even know the balance of till the 8th of the next month and I cant pay it early even though thats when I budgeted the money. So if I get paid on say, the 22nd – that can be like 16 days! That… Read more »

Peg
Peg

I’m so glad that Chris decided to address this issue before it got out of hand. If he can keep himself aware of how much he has spent using his credit card, he will never have trouble paying the bill when (or before)it is due. It’s interesting that he said that he feels like he’s spending somebody else’s money until that bill comes. To me, it feels like I’m spending ahead of my income, which is not a good feeling. So for me, this acts as a brake against using a credit card rather than a debit card. Psychologically, my… Read more »

Lee
Lee

There’s a flipside to the psychology of debit card vs. credit card that Cory describes. I used to make everyday purchases with my debit card, figuring that I was spending money I already had in the bank. Trouble was, I ended up spending MORE, because I knew there was money in that account and therefore I gave myself permission to spend it. A financial advisor suggested I try switching to a credit card for everyday purchases like food and gas in order to track how much I was spending. This has worked for me because I see the sum total… Read more »

Doug
Doug

Chase has the option of having a text message sent with your balance. I used it to help motivate me out of credit card debt.

Jon
Jon

We use our credit card for almost every purchase. We also pay the balance in full on or before the due date. Our situation is different,but not uncommon, since I get paid irregularly in large sums. I deposit what I receive into a “high” yield account, and budget out what I would’ve gotten paid at the last (crumby) job I had. It’s akin to the “bank your bonus” theory. It takes discipline, but I’m preaching to the choir. I might also mention that I went stupid-crazy with CC’s at one point and ended up 30K in debt. My spouse did… Read more »

Laura
Laura

Could it be that Cory just feels some resistance to keeping up with his credit card spending in some way other than mentally? I used to resist doing this – I just hated the habit of recording receipts. But, the more complicated my financial life became, the more important it was for me to do the work of tracking my spending in some physical way. You will indeed feel like you’re spending your own money if you sit down weekly and record your credit card receipts, then subtract that from your available funds for the month. You can use fancy… Read more »

Lissa
Lissa

Credit cards don’t have to be a bad thing. I could more accurately tell you what’s on our credit card before I could tell you what’s in the bank account. That’s why I don’t like debit cards – it’s too hard to keep track of when checks clear, paychecks hit, etc. We actually use the credit card (two actually, one Amex Blue Cash and a Visa for places that don’t take Amex) as our budgeting tool. Each month, a set amount is budgeted for the card. These expenses include gas, dining out, groceries, prescriptions, fun, and any other spending. Every… Read more »

Richard
Richard

I initially paid off my Credit Card every time I used it. This was easy because it was through the same bank that my savings an d checking accounts were with and I could do it online.

I think paying it off daily removed any sense that the money wasn’t mine.

Now I pay it off monthly, but I still look at the balance 3-4 times a week and check that eveything is as I expect.

Funny about Money
Funny about Money

LOL! As a fresh-minted divorcee and in full bag-lady syndrome mode, I was so determined NOT to get a million bucks in debt ever again (no exaggeration) that on the rare occasions when I used a credit card, I immediately wrote a check in the amount of the charge and dropped it into a file folder. The amount of each check would be subtracted from the balance of my checking account. When the statement showed up, I’d drop a fistful of checks into the envelope and ship it to the credit-card issuer. This worked to keep me from charging more… Read more »

Joel
Joel

Like many other readers I’ve (almost) completely stopped using a credit card. I use it only for work-related purchases (with exact reimbursement coming the bill is easy to track and pay) or for specific, single items (rare occasions). I got into the work purchases habit from my dad who kept one card for only work stuff to simplify submitting receipts for things.

Eric J. Nisall
Eric J. Nisall

To all of the people who tell Cory (as well as every other person that asks a similar question) that cash is the only way to live: Please try to offer advice with relevant examples rather than simply saying that credit is bad, a trap, a scam, etc. If a cash-only life works for you, great! But that may not be the best lifetyle for everyone. Some may say that you are crazy for missing out on all of the benefits that a credit card provides, but they would be just as wrong for forcing their lifestyle choice on you.… Read more »

JenA
JenA

We actually have a line item in our budget for how much we can spend on our credit card each month so we know we’ll have the money to pay it. We also limit our credit card expenditures to certain things, like dining out and entertainment purchases so that if we hit the limit for a month halfway through the month, it’s easier to just not spend on those things any more (you can’t just not buy groceries for the rest of the month, but you can stop eating out!). I track the amount of every receipt in an Excel… Read more »

db
db

I don’t like my debit card, and so I never use it. However, I use my credit card for EVERYTHING and pay it off every two weeks. I do have to pay attention to not let it be a license to spend. What I did was I figured out how much I could afford to make as a payment every two weeks, and divided that amount equally by the number of days that span payments. That gives me a daily budget. I can spend that amount daily, or I can “save budget” if I want to go do something like… Read more »

Jordan
Jordan

Cory is looking at the credit card like many people do in that he has a credit limit and he can spend up to that point. Don’t let the credit card company dictate how much you can spend. Psychologically change that so it is part of your overall budget. Set aside an amount each month, say $300, that you will not touch in your bank account and that will be your credit card payment amount. Then, rather than adding up the credit card purchases to keep track, subtract down. Thus you will keep track of how much you have left… Read more »

pfnut
pfnut

I use my credit card for gas purchases and major purchases. I pay off the credit card each month. If I do not have the money to pay off the card it is time to cut up the card.

I use my debit card for all other small purchases. I put the receipt for each debit transaction in my wallet so I will remember to log the debit expense in my check book. After I log the expense I throw away the receipt. The system works great and I don’t forget debit charges.

Moneymonk
Moneymonk

Two days after you use your credit card, pay the bill!!!

You don’t necessary have to wait 30 days later until the bill comes.

tiffany
tiffany

I feel like CCs are a slippery slope, well in my household it is. We’ll have huge cc debt, pay it off in full, and then once we start using our CCs again, we have huge debt. We can never get into that habit of using the card and paying in full. This past summer, we’ve used our debit cards only but with my husband back in school and colleges creating a monopoly on books, we had to resort to ccs again. It’s tough not having that cushion to fall back on when the funds run low. I really despise… Read more »

BrianF
BrianF

If you spend your money on savings goals and big payments (house, rent, etc) first, I don’t think you spend more with a credit card. I have a budget and my wife and I don’t impulse buy. Every paycheck, we put money in ING and Credit Union subaccounts for Clothing, Medical, Vet, Auto, Gifts, Travel, Tithing expenses. After all those transfers, we have our daily spending on dining out, groceries, etc. We have no problem staying within our budget on those items. There just isn’t much left over after all of those transfers! Big purchases like clothes, baby expenses, etc… Read more »

Judy
Judy

Using a credit card takes tremendous discipline, as Corey is seeing. I’ve always been financially savvy, yet there have been a couple times where I let the CCs ratchet up to 4-5000 or so. It happened so fast I was shocked. The same led me to pay them off ASAP, but ouch. I would suggest Corey immerse himself in the Dave Ramsey no debt philosophy. The psychology behind credit cards is fascinating, and they can be a huge trap. It’s so freeing to use cash. Personally, I now only use one CC for gas. Costco’s Amex gives a 3% discount… Read more »

kick_push
kick_push

not really sure if this is a “trick”.. but i have a credit card from my bank that is linked directly to my checking.. so they are together in my online banking.. it’s convenient because i can make payments whenever and as often as i’d like

more importantly.. i always know how much i’m spending and i always pay in full every month

Tim
Tim

we do something similar to Ann above. We keep a ledger as if we are writing a check. The amount we have budgeted for purchases goes on top, and charges on the credit card get deducted from that budgeted amount just as if it were our checking account. no more balance, no more purchases. we do not carry balances; however, we are going to take advantage of the grace period to earn extra interest during that time. this coupled with the savings of using cc through cash back, and the cc purchase assurance features makes using a cc right for… Read more »

Zeph Greenwell
Zeph Greenwell

This situation is lot like I do. I keep a real close eye on my debit card spending but a credit card is different. I would just not use the credit card for purchases at all. If it is something you NEED then you can make an exception. Using it to buy fast food and new toys ends up only getting you in trouble.

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