Remember the financial basics
"Pay credit cards off quickly and on time". The financial basics mantra is one of eZonomics’ Four more tips for credit cards. Figures showing how quickly credit card debt can mount if left unpaid illustrate why it is so important. Even if only the minimum cerdit card bill payment is paid, over years interest can add up to be higher than the original bill. The Federal Reserve credit card calculator estimates a $2000 debt on a credit card with an annual interest rate of 20% would take 26 years to pay off using only a minimum monthly payment of $40 – and it would accumulate $6,168 in interest.
So dealing with credit card debt - and, depending on circumstances, aiming to pay off credit card bills in full each month - can be hugely important.
How do we think about credit?
Thinking of credit card balances as “negative” rather than “positive” is a thinking trick that may help curb overspending and keep balances under control. The Nudge blog, an online companion to the popular behavioural economics book of the same name, gives the example of a card with a $10,000 limit and $8,500 spent. It suggests that framing the credit card bill as a debt of -$8,500 (rather than the opportunity to spend another $1,500) “makes you feel that you should move up to zero, rather than trying to stay below $10,000”.
Likewise, in book Predictably Irrational, academic Dan Ariely argues for self-imposed monthly limits on credit cards for clothes, dining out and other luxuries (or at particular stores). Exceeding limits incurs a penalty – such as a charity donation or an email expose of the self control lapse being sent to friends.