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Understanding the Psychological Toll of Credit Card Debt | Ep. 317
Episode 31723rd April 2024 • Money Talk With Tiff • Tiffany Grant
00:00:00 00:17:59

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In this crucial episode of Money Talk with Tiff, Tiffany Grant dives into the seldom-discussed topic of how credit cards can significantly influence our mental health. She unpacks the history of credit cards, discusses the psychological effects of spending with plastic, and gives practical advice on managing credit card use to foster financial and mental well-being.

Timestamps:

[00:00] Competition spurred credit card innovation, global convenience.

[06:36] Credit card debt causes financial stress and strain.

[09:31] Creating a budget is crucial for financial stability.

[13:04] Use credit card regularly, pay off immediately.

[14:41] Get help with credit card debt wisely.

Key Points:

  • The origin of credit cards and their evolution since the 1950s.
  • The psychological differences between spending with cash versus credit.
  • Benefits of using credit cards, including building credit history, rewards (with a cautionary note on their use), and fraud protection.
  • Personal anecdotes about how credit can be advantageous when used responsibly.
  • The stress and anxiety associated with credit card debt, backed by studies highlighting the correlation between debt and decreased mental health.
  • The role of money management in personal relationships and self-esteem.
  • Strategies to stay in control of credit card use, such as budgeting, spending tracking, and setting spending limits.
  • The importance of paying off balances each month and keeping utilization low to improve credit scores.

Resources:

Call to Action:

  • Reflect on your relationship with credit cards.
  • Consider necessary changes to enhance your financial health and mental well-being.
  • Get help if you're struggling with credit card debt.
  • Engage with Tiffany through social media or email to share your experiences.

Reminder:

  • If you have a question for Tiffany to answer on the podcast, submit it at www.moneytalkwitht.com/asktiffany.
  • Don’t forget to like, subscribe, share, rate, and review the podcast.

Social Media: Follow @moneytalkwitht on all platforms for updates and financial insights.

Contact Information:

Website: www.moneytalkwitht.com

Submit Questions: www.moneytalkwitht.com/asktiffany

Social Media: @moneytalkwitht

Support this Podcast

Copyright 2024 Tiffany Grant

Transcripts

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You know what it is. That's right. It's time to talk money with your money

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nerd and financial coach. Now tighten those purse strings

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and open those ears. It's the money talk with Tiff

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podcast.

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Hey, hey, and welcome to Tiffany's take, where I answer

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your questions right here on the podcast. If you would like your

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question answered, just go to

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www.moneytalkwitht.com

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axtiffany, and I'll be more than happy to answer. So for

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this episode, I've been getting a lot of people reaching out

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about debt, particularly credit card debt,

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and how it has been stressing them out, affecting their mental health, so on and

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so forth. And so I wanted to do an episode on the impact of

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credit cards on mental health because I feel like it would

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be helpful for everyone. At this moment. It

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seems like there's so much credit card debt out there

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right now, and we, you know, the whole keeps

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getting deeper and deeper. Trust me, I'm. You're not

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alone. If you're listening, I have credit card debt as well.

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But I wanted to do just, like, a brief overview of the history

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of where credit cards came from, the good side of credit,

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why it becomes stressful, and then how to manage better.

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So without further ado, let's jump right in. So, first and

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foremost, back in the 1950s, there was a

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situation where this guy named

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Frank McNamara, he was at a restaurant,

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and he realized that he didn't have his wallet. And so he was

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like, dang. Like, I really want some food. How can I pay? Is there a

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way to pay without cash or checks on hand? And so

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from that moment of embarrassment, that's when he created the

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diner's club card. So this was back in 1950, and

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it was just a card that allowed the members to charge their meals at

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27 restaurants in New York and then pay the bill

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later. So kind of think of it as, like, a membership

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card, right? And so then other companies started

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catching on. And so in 1958, that's when bank

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of America launched the bank Amerit card, which would

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eventually become visa. So Visa was the first one, and that

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was the first revolving credit card issued by a third party

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bank that was valid at multiple merchants. So, unlike the

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Diners Club, which required full payment of the bill each month, the bank

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Americard, aka Visa, allowed you to carry

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a balance, transforming how we all managed our

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money. So then after that, in 1966,

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was when interbank card, which is now known as Mastercard,

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came into the picture because, of course, they see, oh, Visa

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is making money. Bank Americard is making money. We want to make money, too.

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And so this is when they stepped in. Now, this

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competition spurred innovation, leading to the credit card system that we know

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today, a global network of financial convenience.

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So that's kind of how credit card started. So if we

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look at that and we look at the phenomenon that's going on now, when

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you see, like, buy now, pay later type situations, which

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is running rampant, it all started from

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a place of needing to get something or wanting to get

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something and not having the money to actually get it

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right then and there. So nothing really has changed over

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the years as far as how credit cards

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are used or how people use them. And I'll

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also add that once credit cards were

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introduced, then it also took away,

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you know, you having to physically count out your money or

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physically write a check, which psychologically

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is different than if you're just swiping a card. Because when

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you are counting out money, you actually feel

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it. You see it leaving your hands when you're swiping a

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card, that does not happen. And so it's easier to swipe

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than it is to hand over money. And to prove that

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point, next time you go, let's say, to the grocery store or what have you

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use cash and see how different that feels than you just swiping

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your card. And so with all of that,

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these companies realized that they could make money doing this.

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Now, don't get me wrong, there is a good side of using

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credit. So, of course, we all know you can't have credit until you have

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credit. And so, you know, if you ever

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wanted to get a house and you didn't have cash for a house or get

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a car, you don't have cash for a car, you're going to need credit.

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So building your credit history, also the convenience,

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sometimes, you know, just having a card on hand, the

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rewards. And also, I'll put a asterisk

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there with the rewards because that was also

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a marketing ploy for the companies to make more money.

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Now, if you use it responsibly, then cool, it'll work out

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for you. But if you don't, then that's just a way for them to

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get you to spend more on the credit card. Therefore they can charge

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more interest, therefore they make more money, and so on and so forth. So I

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just wanted to throw that out there, too. But also protection against

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fraud. So if you don't know, like if you use your debit card,

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for instance, it's a little harder to get your money back than if you use

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a credit card. When it comes to someone using your

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card without your permission. So if there's any fraud

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involved, it's easier to get your money back with a credit card than it

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is with a debit card. So also that's a good sign of credit

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as well. So I've also talked about on

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the podcast before back or way early. I think it was

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like one of my first episodes, maybe like four or five. Anyway,

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I talked about how I used credit to help get my son's

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braces when his dad had backed out at the last minute with his half of

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the money. And so there are situations where

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credit can come in handy, and you can use it responsibly

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to get things done that need to get done, but you

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also don't want to use it as a form of income. You

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want to use it as a tool to get what you need. So that's kind

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of how I look at credit, is using it as a tool

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to get whatever it is that I need and not as income.

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So when you think about it in that way, it makes you spend a

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little differently. Now, let's go into the

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stress that can come with using cards. So

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when you use credit cards, you know, at first it's all

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good. You know, you're like, oh, I just got these shoes, or, oh, I just

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went on this trip, or whatever the case may be. But

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later on, as you're starting to pay down that bill,

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you realize and you start getting stressed out or anxious

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about this mountain credit card debt. Because if you haven't

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noticed, with the rise in interest rates over the past year

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or so, it seems like these credit cards are going anywhere. And

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especially if you're paying just the minimum balance I've had, I have

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cards where they're actually increasing in balance even though I'm

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paying them. So it can feel like a never

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ending hamster wheel, you know, once you start going into

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that cycle. And also

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because, you know, I talked about how easy it is to spend on credit

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cards that can lead to financial strain, that

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can lead to financial stress, and then that can

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lead into our mental health and well being, being

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affected. So I know it's easy for me to talk about it, but let's look

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at the data. So a study published in the Journal of Family and

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Economic Issues found that individuals with higher levels of credit card

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debt reported higher levels of stress and lower well

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being. The numbers don't lie. They tell stories of sleepless

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nights and anxious days. Another study

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from the American Psychological association. So

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APA found that about 72%

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of Americans report feeling stressed about money, at least some

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of the time during the month. Now imagine the added

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strain when credit card debt enters the mix. It's like the shadow that

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follows you, affecting your mood, your relationships, and even your self

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esteem. I can tell you firsthand just

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working with different couples and also in my

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situations as well, that if your money's not right,

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your mood's not right. If your mood's not right, your relationships are not right.

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So that is why this is so important in

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getting things under control, because money can

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affect a lot of things, and relationships can be one of the

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casualties. Another compelling piece of evidence comes from

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a survey conducted by the National foundation for Credit Counseling. I've talked

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about them before, but they revealed that individuals

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with debt are more likely to report feelings of depression and

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anxiety. So these aren't just fleeting emotions for

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some, they're constant companions. And so

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that's why this is super important.

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Now, let's get into now, I know that sounded doom and

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gloom so far, but let's get into some

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practical tips to manage credit card use better and

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to have a better effect on your mental health. So first

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and foremost, creating and sticking to a budget. I know you all

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are tired of hearing me saying that, and I don't care, but it's so important

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to have that set up. And even if you

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don't stick to it, um, just having that

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awareness of how you're spending your money, how much you actually

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have to use so you don't have to use credit cards,

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is priceless. It's priceless in so

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many different ways. So if you have never

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created a budget before, I'll make sure I'll put a link in the show

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notes for a whole blog post I did on budgeting that

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includes a video walkthrough of the budget

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spreadsheet that you get for free. So that way you can

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do that. I'll also put a link in the show notes for

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my budget nirvana course, which goes more into

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depth about how to create your budget. All the mindset hacks

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and things that I use when it comes to budgeting, so on and so forth.

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So make sure you check that out for that information. Check out the show

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notes next. You want to keep track of your spending. So this goes hand in

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hand with budgeting, but it's so important to keep track of how you're

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spending and what you're spending it on. I have learned

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that once I go through the process of having my

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clients write out everything that they're spending or tracking for that first

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month or so, they're like, oh my gosh. Like, I didn't know I was spending

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XYZ on this, you know, because if you don't

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have that awareness, it's really hard to figure out where your

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money is going. And I like to use the analogy of a boat. Let's

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say you're rowing a boat and all of a sudden you see water

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starting to come into your boat. You don't know where the money is coming from

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because there's no huge visible holes. But what's

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happening is there's little small holes. And I

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equate that to small holes in your budget. When you don't keep track of your

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spending, you don't know what's going on. All those little small holes

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can sink your ship. And so you want to make sure that you're keeping

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track of what you're spending on and how you're spending your money.

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So that way you can plug up those holes.

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Also, if you do use credit cards, set limits on your

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credit card use. I know there's some people out there listening like, well, Tiffany, I

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love my rewards. Well, I love them for you as long as you use them

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responsibly. So set limits on how you use your credit cards.

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When you use your credit cards. When I was credit card debt free, I only

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use my credit, I literally put my cards in the

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freezer. So I put them in water, put them in the back of the freezer.

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I took them out my pocketbook so I won't be tempted because know

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thyself. And so I did not

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unfreeze them but once or twice a year just to make sure they don't

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administratively close them. And even when I did use them, it was only

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for gas or something small, just so they won't close the card.

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So that's another thing too. If you do have credit cards,

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make sure that, you know, if you do get on the wave of

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not using them, just use them periodically just so they

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won't close them. Because if they close them, that could also

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affect your credit score. Okay? So keep that in mind.

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But yeah, setting limits on your credit card use is super

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important. You know, you don't want to be maxed out and in

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a situation where you're maxed out and you can't afford to pay it

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back because then again, that will affect your

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mental health. Also, you want to make sure that you pay off your

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balances each month to avoid interest charges. So this is a

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misconception that a lot of people come to me about. They're thinking, oh,

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well, don't I have to keep a balance on it, you know, in order to

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improve my credit? No, you do not. When I was

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improving my credit, I would use it and pay it off almost

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immediately because I was terrified of credit, and

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that worked. So as long as you have them open,

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use them periodically, your credit card, your credit

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score will increase. The only,

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and honestly, I feel like these companies are the ones that

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made this up, that you need to carry

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a balance because they're the only ones that benefit. So when you carry a

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balance from month to month, you pay, pay interest on whatever that balance

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is. If you pay it off almost immediately, you don't have to pay any

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interest because no balance is being carried over. So

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keep that in mind as well. If you're in a situation where you

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already have credit card debt and you can't pay it off every month, at least

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try to get below 30% utilization, because then

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that would have a better effect on your credit score and then also

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your mental health, too, if you can keep your balances as low as

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possible. It is such a relief. It is

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such a relief. Also. I just want to encourage

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you all that you want to view credit cards as a

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tool so when they're used wisely, they can age you

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rather than harm your financial and mental health. And I know I've said that before,

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but I wanted to reiterate, credit cards are tools. They are

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not income. So you always want to use them wisely. If

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you want to get into the rewards game, use it wisely. If you want to

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use it for whatever it is, just use it wisely.

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Now, I will say that overcoming credit card debt is

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challenging, and it can feel extremely

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overwhelming. So I do want to let you

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know that it is okay to get help. If you need help

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with coming up with a plan to stay on track, to

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have someone say, oh, no, you know, we're not using a credit card for

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that, then get help. And I do

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offer one on one sessions with clients, so I'll make sure I have that

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link in the show notes as well where we can hop on a 15 minutes

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call for free just so I can see if I can help you or

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if I need to refer you to a credit counseling nonprofit or whatever

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the case may be. But I will say get help if

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you need help. Because sometimes, and this

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happens a lot with people that come to me, they just take the

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ostrich approach and stick their head in the sand. And they're

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like, well, if I ignore it, it never happened. And I'm here to tell you

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that is not the truth. So stop telling yourself that. And if you need

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help, get help, okay? There's nothing wrong with it. And

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there's so many people in all different income

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brackets that I help with their money. So there's no

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shame, no guilt, but we can work together to figure out a

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way to get out. Okay? So hopefully that was

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helpful. You know, in this episode, I just wanted to go over how credit

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cards started, what the mindset was with

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the people that started, and then also how it

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can negatively affect your mental health or positively if

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you use it the right way. So I want you to take a moment to

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just reflect on your relationship with credit cards and consider any

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changes that you might need to make for your financial health

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and well being and also your mental well being. Thank you so

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much for tuning in. You can find all the resources that I

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mentioned in this episode, plus more in the show notes, so make

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sure you check that out. Also, if you would like your question

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answered on the podcast, go to

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www.moneytalkwitht.com

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axtiffany. Also, make sure that you are

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liking subscribing, sharing and rating, and

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reviewing this podcast because it helps other people find

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us. And also, I would love to hear your experiences with

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credit cards and mental health via social media or email.

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Just let me know how you feel about either

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this episode or just credit cards in general. I'd love to

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hear. So thank you so much for listening and I hope you all have a

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wonderful rest of the day. Bye. Thank you for

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listening, joining and being a part of the Money Talk with TIFF podcast this

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week. You can check TiFF out every Thursday for a new Money talk

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podcast, but if you just can't wait until next week, you can listen to

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previous podcast

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episodes@moneytalkwitht.com or

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follow TiFF on all social media platforms at

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moneytalkwitht. Until next time, spend wise

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by spending less than you make a word to the money wise is

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always sufficient.

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