The Six Deadly Sins of Credit Card Use

How a Few Bad Habits Can Add Up to a Cycle of Eternal Debt

We all know that credit cards are hazardous to our financial health, but Americans are still using plastic just as much as ever.  Just how bad is our addiction to plastic?  According to a recent Cardhub study, Americans racked up a little over $18 million in credit card debt in the second quarter of 2011 alone!

That’s a lot of debt.  So, what gives?

As it turns out, many otherwise intelligent and well-meaning people have developed some pretty bad habits when it comes to credit cards.  We shop when we need an emotional pick-me-up.  We’re impulsive.  We’re competitive.  And when it comes to making smart credit card decisions, we often let our emotions and impulses take over.

Are you at risk?  Do you find yourself locked in a seemingly endless cycle of credit card use?  As it turns out, just a few bad decisions or spur-of-the-moment purchases can put you on the path to serious debt. Read on to learn more about the six deadly sins of credit card use:

Deadly Sin 1:  Competitive Spending

It’s easy to get caught up in a permanent game of keeping-up-with-the-Joneses in an effort to outdo your friends,  neighbors, co-workers, or family members.  It’s tempting to whip out the credit card to buy a bigger TV or a trendy designer handbag – but all you’re really doing is getting yourself deeper in debt.  Forget the Joneses.  If you can’t pay cash for it, don’t buy it. End of story.  Say “no” to aspirational or competitive spending.

Deadly Sin 2:  Falling Into the “Buy Now, Pay Later” Trap

Retailers know that deals like “zero percent interest” or “no payments for 18 months” are hard to pass up – especially when it comes to purchasing big-ticket items like appliances and furniture.  Those kinds of gimmicks appeal to our desire for instant gratification.  They sound like gret deals – until the interest-free period wears off, that is. Want true zero-interest deal?  Save up and pay cash.

Deadly Sin 3:  Excessive Bargain Hunting

Everybody likes a good deal, but some folks have trouble knowing where to draw the line – especially now that online bargain hunting via services like Groupon has become a kind of national pastime.  But the thing about a bargain is, it’s only a bargain if you were planning to buy it anyway.  And more importantly, it’s not a bargain if you can’t afford it. If you have to charge it, you don’t need it – no matter how great of a deal it is.

Deadly Sin 4:  Buying (Temporary) Happiness

If you’re the type to indulge in a little “retail therapy” after a hard day, you might be putting yourself at risk for serious debt.  I’m not saying that shopping can’t be fun from time to time, but you have to know where to draw the line.  Using your credit card to make a bunch of impulse purchases might cheer you up in the moment – but that mood won’t last when you get your monthly statement.  If you’re prone to overindulging at the mall, stay away when you don’t have cash.  Or, leave your credit cards (all of them!) at home and go window shopping instead.

Deadly Sin 5:  Getting Hooked on Getting Cash Back

You say you only use that credit card because it gives you cash back on your purchases?  Well, the problem with that is, you have to spend a lot to earn any serious money from cash-back credit card offers – most cards give you something like one dollar for every hundred bucks you spend.  In the long run, you’ll save (a lot) more money if you opt to pay cash instead of using a credit card.

Deadly Sin 6:  Misusing Balance Transfers

When used responsibly, a balance transfer can be a helpful way to avoid high interest rates and pay down debt.  But it’s easy to get stuck in an endless cycle of balance transfers, using one credit card to pay off another credit card, then another, and so on.  When you transfer a balance, you should pay that balance off as quickly as possible – and don’t use a balance transfer as an excuse to rack up new debt!

Are you guilty of any of these deadly (and costly) credit-card sins?  Are you an emotional or aspirational spender?  A balance-transfer junkie?  The good news is that once you know your weaknesses, you can start to make changes in how you spend money and use credit cards – and that’s the first step to breaking the bad habits associated with high-interest credit card debt.