credit card

Like most people in the United States, you probably have at least one or two cards in your wallet, and you most likely make many of your everyday purchases with them. Cards are easy to carry and easy to swipe, and if you rely on cards rather than cash, you are not alone. What you might not realize though, is that using a card for all your purchases can have a big impact on the way you spend your money.

How Cards Can Affect Your Spending

An increasing number of people in the United States use cards rather than cash to make everyday purchases. According to a 2016 report by Experian, the average American has more than 2 credit cards. American Consumer Credit Counseling (ACCC) conducted a survey of consumers and found that most people use their cards frequently, with only 14 percent using cash for everyday purchases.

However, there is evidence that relying on cards can affect the way you spend. Numerous studies show that people spend more when they pay by card, than when they use cash. For example, in a frequently-cited study from 2001, two professors from MIT conducted an experiment where they held an auction of basketball and baseball tickets. One group of participants used cash to bid for tickets, while the other used credit cards. The researchers found that those in the credit card group were willing to pay about twice as much as the cash group.

Cards Make It Easier to Fall into Debt

The reason people often part with their money more easily when using a card is that cards can make it easy to forget that real money is being spent. All you have to do is swipe, or insert your card, and the purchase is complete. You don’t immediately see the results of that spending on your bank account. In contrast, cash is a tangible thing that you physically hand over to a merchant, and when you spend it, you immediately see that there is less of it remaining in your wallet.

Not only do cards make purchasing easy, but when the card is a credit card, many people find it easy to spend money that they don’t even have. Research shows that this is a serious problem in the United States. For instance, according to the ACCC study, 58 percent of credit card holders use their card because they don’t have the money for a large purchase. The researchers found that these people hoped to have the money to pay off their bill at the end of the billing cycle. Unfortunately, in reality, many people don’t end up paying off their purchases every month, and they become burdened by debt and finance charges. According to a study by WalletHub, in 2016 the average U.S. household had $8,377 in credit card debt.

Cards vs. Cash

In an effort to avoid the problem of overspending and credit card debt, some people don’t use credit cards, opting for cash instead. Research shows that millennials in particular have embraced this trend. For instance, a 2016 survey showed that 63 percent of millennials do not even have a credit card. One of the biggest advantages to using cash is that you are forced to stick to your budget; when your cash is gone, you can’t buy anything else. In addition, unless you actually borrow money somewhere, you can’t fall into debt if you live on a cash basis. Not having cards can also eliminate worries about interest charges and other fees, and lessen the threat of fraud.

However, while cards can be dangerous, they also have some substantial benefits. One of the biggest is that using a credit card can help improve your credit score, and while you might think that you can do without credit cards, it is very likely that you will need a good credit score at some point in your life. For example, having a good score can make it easier to qualify for a mortgage or a car loan, or even to get a job. Cards can also be safer than carrying around a large amount of cash. If you lose your cash or somebody steals it, it is gone. In contrast, most cards offer limited liability in the case of fraud. Finally, some credit cards offer valuable rewards, such as travel rewards or cash back, that you can earn simply by making your everyday purchases on your card.

Using Cards Responsibly

Even if you decide that you prefer to use cash instead of a card, it is unlikely that you will be able to—or even want to—eliminate your use of cards altogether. In addition to the fact that cards can help you build needed credit, in today’s modern society there are times when it can be very difficult to use cash. For example, online shopping, or hotel or airline reservations generally require a card.

This means that regardless of how you feel about cards or cash, it is wise to learn how to be a responsible credit card user. Most experts advise paying your bill on time, keeping your credit-utilization ratio low, and paying more than the minimum balance each month. Responsible credit card use also includes staying in control of your overall finances by making a budget and sticking to it. Finally, it is a good idea to stay aware of how your credit card use is affecting your credit, by checking your credit report and your credit score on a regular basis.

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