People are choosing credit cards over cash when it comes to everyday spending. Many of the cards either offer cash-back incentives or reward points that can be used for air travel and hotels. Therefore, it just makes sense to many of today’s travel-friendly consumers and cost-conscious customers to make use of credit cards for everyday purchases over cash.
Incentives, such as frequent-flier miles only accelerate a temptation that financial institutions have profited from for years. Financial professionals say that paying with credit and cash incentives consumers to spend more. When you are not paying cash for most purchases, the loss is not as intense.
According to research, study participants who were told they had to pay by credit card only paid twice as much as participants who could only pay cash. Researchers noted that it is unusual to see examples of individuals who offer double of what they would have otherwise spent.
However, the ease that comes with purchasing with plastic, or what marketers note as “friction-free spending,” is not the only reason consumers now prefer to use credit cards. They are also conditioned by the sight of credit card logos to spend more as well.
Researchers indicate that people will spend more when these kinds of stimuli are present. According to scientists, paying $5.00 for a cup of coffee may seem substantial if you only possess $10 cash. However, if you hold a credit card with a $10,000 credit limit, that same $5.00 does not seem like much of an expense.
However, researchers also note that incentive cards do not work unless the user pays off their balance each month. For the roughly 60% of consumers who cannot pay the monthly amount owed, it is best to seek out a card with a low interest rate. According to current news, the typical consumer owes about $2,000 in credit card debt – a debt that comes with a yearly rate of interest of about 16%.
So, if you are using your credit card over cash, but cannot pay off the balance each month, the main incentive you should seek is a lower interest credit card. If you want to use a rewards card, make sure you can pay off the balance owed on your monthly statement.