4 Ways Credit Cards Manipulate You Into More Debt

By Emily Guy Birken. Last updated 7 July 2014. 12 comments


Credit cards are engineered to make sure you become a long-term, loyal, and indebted customer. Since many of the decisions that consumers make are not rational, card issuers work on those irrational impulses to make sure you spend money with their card without thinking logically about your actions.

Here are four methods that card issuers use to get you to sign up for their cards and keep you in debt. (See also: Which Type of Rewards Credit Card is Right for You?)

1. Appealing to Your Individuality and Creativity

Once upon a time, credit cards all came in the same boring colors. But sometime in the past 20 or so years, banks started allowing cardholders to express their individuality through their credit cards. Suddenly, you could show off anything from your adorable nephews to your commitment to the Humane Society with every purchase you made.

Part of what is going on here is something behavioral economists refer to as the IKEA effect. This effect causes individuals to value something more if they worked to create it. Not only does that mean you’re more likely to keep the inexpensive IKEA bookcase you put together with your own hands for years after you don’t need it anymore, it also means that you are going to overvalue the credit card whose cover image you chose.

In addition, your pleasure at seeing the chosen image will make you want to show it off — that is, use it more often.

2. Encouraging Instant Gratification

The very essence of credit — putting off payment — is something that appeals to a nearly universal cognitive bias called the present bias. (A cognitive bias is an error in logical thinking that is very difficult for an individual to recognize in himself.) Basically, this cognitive bias makes an individual value an immediate experience over future experiences.

The present bias is why it’s so easy to stay up late to watch the "Doctor Who" marathon even when you know you have to get up early the next day for an important meeting at work. Now is so much more important than later in our irrational minds, it can very difficult to make the responsible decision.

This, of course, is why it is so very easy to get into credit card debt and so difficult to dig out of it. Yes, your future self might need to work overtime every week to be able to make the payments on your credit card, but your now self really wants the big screen TV. Card issuers understand this quirk of human irrationality very well, and they do everything they can to appeal to our “I want it NOW!” tendencies.

3. Triggering Your Restraint Bias

Most people tend to overestimate their own impulse control; they believe that they will be able to show more restraint in the face of temptation than is realistic. This cognitive bias is why your grand plans to lose 20 pounds are often derailed by the first box of doughnuts you see. You have overestimated your ability to be virtuous in the face of temptation.

One way that credit cards use this cognitive bias is by offering to raise credit limits. While some consumers are capable of ignoring that temptation, there are others who will run up their balance to the new limit, even after they have convinced themselves that they can easily handle that much credit.

Another common strategy that triggers the restraint bias is the 0% balance transfer. In these cases, cardholders convince themselves that they can pay off the balance before the end of introductory period. However, many of those who take advantage of these offers are unable to show the restraint necessary to pay off their balance before the interest starts accruing.

4. Making You Fear a Loss of Perks

Many credit cards offer perks, from cash back to travel miles to money for college. The problem with these perks is that in many cases, cardholders are spending much more in interest than they are earning through the perks. Why would they do something so clearly irrational? Because of loss aversion.

Behavioral economists have discovered that human beings tend to irrationally overvalue something they already own or have. For example, plenty of investors have held onto tanking stocks for far too long because they are afraid of losing their original stake. They irrationally hope that the clearly dead investment will recover.

Loss aversion is also the reason why cable companies are happy to offer customers a free trial period of premium channels; viewers are much more likely to pay money to keep from losing something than they are to buy it in the first place.

And of course, loss aversion is a major reason banks offer credit card perks. While cardholders who pay off their balance each month are certainly making money on the perks, the majority of cardholders are not able to do that. If they were, banks would stop offering the perks because they would be the ones losing money.

For most consumers with perks credit cards, the fear of losing the airline miles will keep them charging on a card that they probably should have cut up long ago. They are afraid of losing that “free” flight, even though they are clearly paying for it.

Beware Your Irrational Brain

It can be difficult to responsibly use credit because our irrational brains and the manipulations of the credit industry are working against us. The best way to handle credit is to make sure you are conscious of your decisions and your irrational quirks before you whip out the plastic.

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Guest's picture

This article was very intriguing. Not only did I learn so much more from it I was able to remember a past experience where I wanted to increase my credit card limit. I am so glad that I didn’t because I’ve learned how to manage my money better and I don’t need an increase, all I really needed was discipline to decrease the limit and I’m proud to say that I don’t need to use a credit card anymore.

Will Chen's picture

For me, the Ikea Effect is the process in which I grow to detest buying furniture because I injure myself while assembling it. But gosh darn it, Ikea does have delicious (and cheap) meatballs.

Welcome to Wise Bread Emily! A great first post.

Guest's picture

Great post! Of course credit card companies are going to take advantage of every possible psychological impulse to keep their customers indebted. Unfortunately, way too many people fall prey to these tactics and pay the price (quite literally).

Guest's picture

I so hear you on that IKEA affect. My credit card company recently asked if I wanted a personalized photo on my card.
I think they sent me the mailing because I don't use the card much. And as much as I thought "Oh how fun, I could put a cute pic of my sister & me on there" I resisted the urge!
Having a cutesy fun photo that I love on it would only make me want to use it more. Ohhhhhh they know how to tap into those deep psychological triggers and get you. Just say no!

Guest's picture

My credit card company sends me balance transfer offers in the mail at least monthly. Sometimes I think more frequently than that! They could save so much money on marketing by cutting this tactic down, but then I think of how much money they probably make doing this.

Guest's picture

Disciplined credit users can easily fleece the card issuers. Perks like rewards, low introductory rates, grace periods and others favor using a credit card over cash.

The card issuers actually lose money to acquire many customers who use the perks in the manner intended. They more than make it back from those with good intentions, who then fall into the traps this article describes so well.

Greg Go's picture
Greg Go

Great article, Emily! Welcome to Wise Bread.

I see the "present bias" in myself all the time. I tend to go to sleep way too late because I know the next thing coming up is heading off to work. So even though the best way to get more sleep is to go to bed earlier, I don't.

Guest's picture

Interesting stuff. When I was studying accounting, we talked a lot about the issue of sunk costs (essentially #4) and how you can't take that into effect. But it's definitely hard for the human brain to wrap its head around. Which, as a turn of phrase, makes no sense, but you get my point.

Raising credit limits never did anything for me except make me smirk and shake my head wondering what on earth they were thinking. I can certainly see how it and 0% transfers can be a big danger. We were mainly able to use the latter to get out of debt on a faster timetable.

As for immediacy... My ADD husband and I still go rounds about that. So I can definitely see how all of these create a willingness to go into debt.

Guest's picture

Great article! I always suggest that clients leave the credit cards at home and try living a cash based life, simply because of the urge to splurge people seem to have when using a credit card.

Guest's picture

These tricks have existed for years, but many people still think that credit card is giving them some privilege free of cost, and the flexibility to pay late or postpone, as they like. What they forget is the golden term "roll over" which makes you postpone payments, and pay interest to the card company month on month.....and gradually getting you in to debt. Instead of spending on credit you could have invested in savings accounts, stocks or gold to earn better returns....think about it

Guest's picture


Great post. I am always intrigued by the "human side" of money and why we do the things we know we will regret. Thanks for pulling the curtain aside on one aspect. Very interesting the way our humaness can be used against us. But I still want a really cool card.

Guest's picture

Actually, rewards cut into overall profit, but because banks earn interchange fees from the merchant during a purchase (*most) credit cards remain profitable to the bank even with rewards.