Does Using Credit Cards Lead to Increased Spending?

There have always been two extreme opinions on whether using a credit card, compared to cash, makes people spend more money. This is most pertinent for UAE residents since credit card usage is very high in the country and there is an increasing number of financial products coming into the market. This article will also delve into the psychology of credit card spending, the effects of credit card use on consumer behavior, and how to manage your credit card expenses effectively in practice.

The psychology behind credit card usage is that people spend more on a credit card than they would if they were using cash. This has been known as the ‘credit card premium’. Studies have shown that the pain of paying is less with credit cards because the transaction is not immediately felt, whereas in cash, the physical handing over of money creates a more tangible sense of loss. In this way, in places such as the UAE, where the use of credit cards is high, it may just facilitate higher spending and possible debt accruing.

Credit cards could further change people’s behaviors by giving a feel of instant gratification. The fact that one can buy and pay later tends to make people impulsive buyers and reduces their sense of needing to plan out a budget. Very easily can most of the residents of the UAE get carried away while using credit cards in their everyday lives, whether it is for dining, shopping, or traveling. And credit card rewards programs, or promotional offers, might also entice people to spend because customers would like to get something out of purchasing goods to receive points, cash back, or other benefits.

However, it should be considered that a credit card is not bad. When properly and sensibly used, it can help create a good credit history, financial flexibility, and many other advantages, including rewards. The idea is to inculcate good spending habits and remain aware of how credit card use shapes behavior.

The following are a few tips that UAE residents can follow to manage expenses on their credit card:

1. Create a Budget: Allocate a monthly budget for credit card expenses and strictly follow it. This will prevent you from overspending and ensure you stay within your means. Get a budget app if you do not have one!
2. Track Your Spending: Continue monitoring your credit card statements on a regular basis; also, write down all your purchases. That way, you’ll get to remain well-informed of your spending patterns and establish areas where you should pull back on spending money.
3. Pay in Full: Strive to pay all your credit card debt in full each month and therefore avoid paying interest. If that proves difficult, at the very least pay more than the minimum so you chip away at the principal of the debt more significantly.
4. Limit the Number of Credit Cards: The more credit cards you hold, the more difficult it is to really control your finances and increases the temptation to spend more. Consider only allowing yourself two or three cards that get you the greatest benefit in rewards and benefits for your lifestyle.
5. Use Credit Card Rewards Wisely: Enjoy the benefits of using credit card reward programs yet try not to let them lead your purchase behavior. Do your best to enjoy benefits from your normal spending but not just for those rewards that you would get by making purchases with or on the credit card.
6. Be Cognizant of Charges and Interest Rates: Be aware of all terms and conditions of your credit card, including charges and interest rates when you must use it. That way, you won’t have any surprises and you’ll have a more organized way of charging things on your credit card. Check your statements regularly and understand the charges if any. You can always contact the bank’s customer service desk for any clarifications on the charges.
7. Seek Professional Advice: If you find it very difficult to manage your credit card debt, consider a financial advisor or credit counselor to take proper steps suitable for your conditions and help you make up a plan to get back on track.

To sum up, to most UAE residents, using the credit card does result in their spending more, but the amount of credit card expenses remains adjustable with mindful and disciplined financial habits. Being informed about the way psychology works in this dimension and putting certain practical strategies into practice will enable you to enjoy the benefits credit cards offer and keep you from falling into the trap of overspending and running up bills.