Brain plays key role in going deep into debt

Should you be using a credit card?

Most experts say no, because credit cards can be dangerous for consumers and businesses alike. For consumers, the pitfalls are that they have high interest rates and it is easy to rack up debt. Despite these drawbacks, the truth is that credit cards are great.

Credit cards are far more convenient for individuals than carrying around cash and reward points carry additional benefits. Credit cards also come with insurance — virtually all banks guarantee purchases and many provide extra warranties. If your card is lost or stolen, no need to fret as you are rarely forced to pay the bill. Paying interest is no fun, but if you truly need the money, cash can’t extend you a loan. High interest rates on credit cards can be avoided. If you are diligent, you can go from one lowinterest program to another until you can pay off your debt.

Businesses also gain huge value from credit card usage. Numerous experiments have proved that average purchases are higher when consumers use credit cards. Subscription businesses benefit from automatic credit card billing, so they don’t have to worry about collecting money each month.

So why all the negativity around credit cards? The simple answer is that our brains can’t process the concept of credit.

Credit defies our most basic brain system: Sense processing. The more senses involved, the more real it is to the brain.

When humans started trading goods, it was a tactile experience. Exchanging one wolf pelt for 12 fresh fish made use of many senses and provided a real comparison. There is a sense of loss associated with paying for something, even though you want the item you are buying. Twelve fish for one pelt “feels” about right.

Credit cards remove that feeling of loss almost entirely.

If you are a shopper, take account of your spending behavior. Are you losing more than you’re gaining with credit card spending? If you are a repeat overspender, I will leave you with two tactics. First, physically record every purchase. Second, check your balance every morning and write it on the same piece of paper each day. Studies have shown that our brains revert back to our senses when we make an accounting of our finances, and that keeps spending lower. If all else fails, cut up your credit cards.