Four more tips for credit cards
Can credit cards encourage impulse shopping? Research suggests they might. See four tips on how to keep credit card use under control.
1. Feel the pain
Swiping a credit card causes less “pain” than physically parting with cash, according to a growing body of research. It might lead shoppers to buy on impulse or pay more than they otherwise would. Perhaps it is because we feel less connection to money if we haven’t touched it or because there is a time gap between swiping the plastic and paying off the credit card bill. Either way, be mindful of the tendency to spend differently when paying with plastic – and consider a cash-only diet if struggling.
2. Pay it off quickly, on time
Credit card debt can mount if not paid off quickly and fees can be added if payments are late. Interest rates are typically much higher than pre-arranged long-term loans and can compound exponentially if left unpaid.
3. Crunch the numbers
Likewise, paying off credit cards by only paying the minimum payment can end up with interest payments higher than the original bill. The Federal Reserve credit card calculator estimates a $2,000 debt on a credit card with an annual interest rate of 20% would take 26 years to pay off using only a minimum monthly payment of $40 and accumulate $6,168 in interest.
4. Look to the future
Credit cards can play into our tendency to prefer rewards now to rewards in the future, even when it isn’t in our best financial interests. The idea of hyperbolic discounting is that people consider the consequences of their choices less the further in the future they fall. It is particularly relevant for retirement planning – so it might be a good idea to think to the future before spending up on credit card.
By eZonomics team
What is eZonomics?
eZonomics.com by ING is about economics made easier. It’s a website where you can find out more about the economics of everyday life. It’s there for you to enjoy, consume, learn, discover, and see what others have to say. We hope it will support you in managing your financial future. Everyday, you will find new articles, videos and a poll on subjects ranging from money, homes, life to society and the future.
We want to hear what you think. Please share with us your ideas for poll questions, or comments on the content. Email us at eZonomics@ing.com.