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Why We Get in Debt, Part 7: Know Yourself and Your Limitations
Only you know what your specific issues are with credit cards and money. Be honest with your limitations, and avoid things that tempt you into spending more with your credit cards.
One of the vital lessons everyone must learn when dealing with personal finances is how to understand limitations and weaknesses. We all have certain temptations and limitations. It is important to understand these when using credit cards because our weaknesses often get us into debt. This is why it is important to carefully evaluate credit cards — including cash back credit cards — and consider our spending habits.
“…excessive borrowing belongs not only in the same general family with insufficient savings, but also with insufficient exercise, obesity, poor diet, and excessive smoking and drinking.”
Boundedly Rational Borrowing, Cass R. Sunstein
When you apply for a credit card, it is important to honestly look at yourself and your finances. Realize you might be tempted to spend a lot just to take advantage of the rewards. Can you resist that temptation? Do you realize that if you carry a balance, then the cash back credit cards cannot make up the interest charges you pay? Know your potential weaknesses and do your best to avoid the temptation to overcharge and keep your credit card spending in check.
If you already have credit card debt it’s important to get out as soon as you can. Create a plan of action that is likely to help you get out of the hole. One tactic can be to use low-interest credit cards. When you transfer your higher-interest cards to low-interest credit cards, you can put more money toward the principal and pay off your debt faster. However, you need to know your limitations. Will you put more debt on the cleared credit cards? If so, you should make sure to cancel the cards as soon as you make the balance transfer to low-interest credit cards. It is important to periodically evaluate yourself and to understand the types of problems you are likely to have when you get involved with credit cards.
All posts in this series:
Why We Get in Debt, Part 1: Behavioral Economics and 5 Types of Apathy
Why We Get in Debt, Part 2: Lack of Self-control
Why We Get in Debt, Part 3: Cumulative Cost Neglect
Why We Get in Debt, Part 4: Procrastination
Why We Get in Debt, Part 5: Unrealistic Optimism
Why We Get in Debt, Part 6: Keeping Up with the Joneses
Why We Get in Debt, Part 7: Know Yourself and Your Limitations
