Many people who find themselves facing bankruptcy will blame credit cards. They will say that they simply spent too much money, they got in debt and they have no way to get out of it. If they use Chapter 7, they want to eliminate that debt, or they want to use Chapter 13 to put it into part of a repayment plan.
But why is it that credit cards are so often brought up? The issue is that they play a psychological trick on their users, causing them to spend more money than they anticipated they would. This can lead to higher levels of debt than someone would have if they were not using a credit card, but they might not even notice until they get there.
How much more do you spend?
The answer to this is different for everyone, of course, but studies have found that people with credit cards tend to spend about 12 to 18% more than if they had made the same purchases with cash. Over time, this can dramatically add up. It might not seem like that big of a deal to spend $120 on groceries instead of $100, but doing this consistently can ruin a budget.
Why do people spend more?
People tend to spend more for two reasons, both of which are rooted in the fact that the money doesn’t feel real. The first reason is simply that they don’t have to handle cash. Handing someone paper bills makes you slow down and think about how much you are spending in a way that swiping a credit card does not.
Next, people will often simply tell themselves that they will figure out how to pay off a card at the end of the month. If they do, it’s not a problem. But if they don’t, then they have made a purchases they can’t afford and they start to get high interest charges and late fees on that account.
Those facing bankruptcy need to know how to utilize all the financial options at their disposal.