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How Credit Cards Ease Your Pain

As SmartMoney reports today, your credit card could be refused for reasons other than exceeding your credit limit. There are many legal purchases for which your credit card may not be used — including medical marijuana, gambling chips and online pornography – whether it be for reasons of risk management and legal reasons or, as some observers believe, ethical and moral policy-making.


But some industry experts and social scientists say card companies may also be trying to inject some “psychological pain” into certain riskier transactions to lower the percentage of non-payment. Using your credit card provides momentary escapism and, until we get the bill, makes us happy.

We all know that we may defer the feeling of parting with our hard-earned cash by using our trusted, brand-name plastic. But a recent study, “The Plastic Trap: Self-Threat Drives Credit Usage and Status Consumption,” published in the journal Social Psychological and Personality Science, takes this idea one step further. Researchers Niro Sivanatha of the London Business School and Nathan Pettit of Cornell University say that if we feel under threat we reach for plastic — not cash – and say that we are more likely to buy designer goods and overpay for them. They call it “the perfect storm.”

Sivanatha and Pettit gave their consumer guinea pigs a series of computer tests and noticed a dramatic difference in spending habits between those who were told they were smart and those who were informed that they were not-so smart. Those in the latter group who wanted to make themselves feel better were 60% more likely to choose credit cards over cash, and they were 30% more likely to buy a pair of designer jeans to feel better. “You are more likely delay the sting of parting with your cash by using plastic,” Pettit says. “It’s made me gun-shy. I now think twice about what I’m buying and why I’m doing it.”

Which brings us back to the gambling chips: “While it might seem arbitrary to prohibit the direct purchase of gambling chips with a credit card while allowing ATM usage within casinos, card issuers are actually trying to inject some sense psychological pain into the process by requiring cash to be exchanged for chips,” says Ben Woolsey, director of marketing and consumer research at CreditCards.com. “This lowers their risk of consumers defaulting on excessive gambling losses. ATM withdrawals also carry cash advance fees, charge interest from the date of the transaction and have much higher APRs. The house always wins.”

Do you spend differently with your card?


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    • A pleasant post together with fantastic suggestions.

    • Fascinating publish. Given my encounter

    • it’s sad for hip hop but game will flop jus like fif .game is jus like fif talks all that gangsta ish and noithn never happens .wwe beefin .always talking about rappers .makes similiar music game’s being a lil better ..he’s bi polar .

    • Buying “designer” jeans you can’t afford is irrational irrespective of the method of payment, as they are identical to jeans that sell for a tenth the price. Borrowing money to gamble is stupid and self-destructive, again irrespective of the form of payment.

      The people who do these things are sheep waiting to be shorn. The best approach would be for some smarter person who loves them to take away their credit cards until and unless they grow up.

About Pay Dirt

  • Pay Dirt examines the millions of consumer decisions Americans make every day: What to buy, how much to pay, whether to rave or complain. Lead written by Quentin Fottrell, the blog examines these interactions, providing readers with news, insight and tips on shopping, spending, customer service, and companies that do right – and wrong – by their customers. Send items, questions and comments to quentin.fottrell@dowjones.com or tweet @SMPayDirt.