We all make financial mistakes from time to time; but rarely do we consider or talk about how our emotions can lead us into (or deeper into) credit card debt.
If you recognize your financial behaviors and spending patterns are not always ones your financial counselor would necessarily approve of, you are not alone. Truth is, the odds are stacked against us when trying to control our spending, especially in a world where we constantly compare what we have/don’t have to our family and friends on social media.
However, with a little increased awareness of our behaviors, and of the psychological marketing tactics companies use to get us to spend, we are empowered to make better choices and keep from falling behind on credit card debt.
Below we highlight five ways our emotions, combined with financial irresponsibility, can result in overspending and lead to debt, as well as how to avoid that scenario in the future.
Check out our blog on the Top 9 Financial Mistakes Consumers Make and How to Avoid Them here.
Spending to Save
The trend we’re talking about here is spending more than you intended, in order to qualify for things like free shipping, “discounts” for buying in bulk, or buying more to meet a minimum spending requirement on a credit card with a rewards program.
If you’ve ever ordered food on Amazon Restaurants or GrubHub, you likely know all too well how we can convince ourselves to spend more to save money. For example, some restaurants will offer free shipping IF you spend a certain amount of money. How many of you ordered more food than you needed just to avoid paying a $4.99 delivery fee? But in order to save $5, you spent $10.99 on a mediocre appetizer you didn’t really even want to begin with?
Another example are reward “dollars” earned at some retailers. Some stores let you “earn” reward bucks, but if you have to spend $75 to use a $50 reward, are you actually saving $50? Or are you spending $25?
Offers like these intentionally confuse consumers to the risks involved. Oftentimes, it’s not until we’re dealing with a stubborn credit card balance that we realize any savings we thought we had were minimal at best.
How to avoid it?
Before signing up for a rewards credit card that requires minimum charges, do the math to see if you can meet the spending requirement with just your regular expenses.
Most give you up to three months to meet the minimum; but if you would need to extend your budget to make the requirement, wait until you not only have a significant expense coming up, like new tires, but make sure you’ve also saved up enough money to pay off your expense as soon as it hits your credit card statement.
Also, as with any other credit card, aim to pay off the entire balance in full every month. This is good practice for any card, but as reward cards tend to feature high-interest rates, paying these off is critical to avoid falling into debt.
Before filling up a virtual shopping cart, wait until you have an actual need for enough items to qualify for free shipping, or take a minute to see if you’ll genuinely be saving any money by adding to your order.
Signs that proclaim something to the effect of, “the more you spend, the more you save!” blind us to the reality of the situation. But the truth is that those are financial honey traps. The more you spend, the more you spend, period.
Buying on Impulse
It used to be that supermarkets were where most impulse buys were offered. Now? They’re everywhere.
Marketers have realized that humans hate to stand in line, and use our silent screams for distraction by providing a litany of small, low-priced (but profitable) items for us to look at while we wait to check out. While everyone purchases a few impulse items from time to time, doing so chronically is a recipe for financial disaster.
How to avoid it?
Give your credit cards a day off and use cash when you’re worried about impulse buys. Seeing money physically leave your hands tends to hurt more than buying pleases us. It also hurts more to use cash than plastic, which is why cash can be a powerful motivator in modifying our behaviors when it comes to finances.
Check your mood before you walk into your favorite store or log onto their website. If you’re feeling upset or dissatisfied, you’re more likely to buy something you hadn’t planned on. Try to distract yourself by taking a short walk, calling a friend, or having a healthy snack with water.
Unsubscribe from mailing lists. It’s cool to be in the know about upcoming sales, but the sole purpose of these emails is to get you to spend. Get your budget and your financial future out of harm’s way by unsubscribing.
Procrastinating can be understood as the unruly cousin of impulse buying. If you’ve put off a purchase, which could be anything from holiday shopping to car repair, you are likely to overspend because you’ll want to get the process over with. Procrastinating puts you in an emotional danger zone, which can have disastrous effects on your finances.
How to avoid it?
Plan expenses as far ahead as far as you can, even if that means only budgeting for the week ahead or that day. Not only will this help you avoid buying more than you need, but you will also give yourself more time to comparison shop and (hopefully) find substantial discounts.
Buying in Bulk
Buying in bulk seems like a good idea on paper, but for many people, it’s not all that helpful. Studies have even shown that buying in bulk causes people to spend and eat more.
How to avoid it?
Before your next trip to a warehouse store, keep track of how much your household uses the items you’re looking to buy. Try to avoid buying perishable items in bulk unless they will be consumed.
Not Having a Plan
This can also be defined as “magical thinking” – the groundless hope that everything will work out.
Not taking a regular look at where your money is going, neglecting to use shopping lists, or never setting up an emergency fund is tantamount to leaving your financial future to chance. It puts you at high risk of having to pull out a credit card when an unexpected expense pops up, and of having to rely on credit cards to meet your regular expenses.
How to avoid it?
One straightforward solution is to never shop without a list. A shopping list will keep you from overspending and has the beneficial by-product of getting you to examine your buying habits.
For emergencies, automate deposits into an emergency fund to keep you from having to put expenses on credit cards.
How do you keep your spending in check? Tell us in the comments below!