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“3 Ways Your Brain Tricks You Into Using the Wrong Credit Cards “ 1
3 Ways Your Brain Tricks You Into Using the Wrong Credit Cards (And What You Can Do About It).
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Keeping the wrong credit card at the top of your wallet is like being in a bad relationship: You’re stuck giving more than you get, making the most of the terrible terms and defending your choices to your family and friends. But it can be hard to make a change, even when your card’s a flop.
“We’re all cognitively lazy,” says Brad Klontz, a certified financial planner and associate professor of financial psychology at Creighton University. “Our natural tendency is to stay exactly where we are.”
Mental inertia can cause us to make irrational decisions in all kinds of day-to-day dealings, with long-term costs in well-being. With credit cards, though, the costs are literal. About 1 in 5 cardholders have a card with fees and rewards that are not aligned with their spending habits, according to a recent study from J.D. Power. For many, sticking with the wrong credit card can be incredibly expensive.
Here are three big ways in which your brain snookers you into using the wrong credit card and what you can do about them.
1. The sunk-cost fallacy
What it is: The impulse to invest more resources — time, money, energy — into a situation because you’ve already made an investment and you don’t want it to “go to waste.”
How it tricks you: Suppose you can redeem your credit card miles only for flights with an airline you no longer fly with. You’ve already paid the annual fee for the year, so you feel like you should keep using your card for all of your purchases, even though the miles are now semi-worthless. In trying to “get your money’s worth,” you’re throwing good money after bad, because whether you continue to use the card or not, that fee has been paid, and you’re not getting it back. It’s a sunk cost.
“[People] make up reasons to continue to stick with the thing they’ve already invested in,” says JoNell Strough, a professor of psychology at West Virginia University. “They say, ‘This card has a good reputation.’ Or ‘There must be some reason I paid that $95 fee.’”
Younger people are especially susceptible to this kind of thinking, according to a 2008 study co-authored by Strough. “Young adults have a bias toward imagining that sticking with a bad choice is going to turn out OK,” she says.
(Info continues from: https://www.nerdwallet.com/blog/credit-cards/3-ways-your-brain-tricks-you-into-using-the-wrong-credit-cards/)