Why are Credit Cards an Anchor for many small businesses?

Believe it or not: Behavioral Economists have shown that the human brain registers pain when making a purchase. This pain is our way of self-regulating our spending habits.

Credit card companies take advantage of this, strategically creating an environment that lessens the perceived pain that is felt. Making it easier to justify larger and more frequent purchases that you otherwise may not have made.

• The Plastic Card – Being less tangible than actual cash, spending money with a card actually “hurts” less. Ever wonder why casinos use chips vs actual currency?

• Deferred Payments – The impacts of paying for an item in the future is harder to conceptualize then paying for an item in the present. Once again making spending money “hurt” less.

• Reward Programs – Built in incentives meant to help you justify spending more money. Platinum Member, Gold Card, Cash Back, Points…. All ways to make spending money feel like a game.

How can I use Credit Cards as a Tool?

Being self-aware that credit cards are built to manipulate your spending habits is a great first step to using credit cards, instead of being used by them. By following a few simple rules, you can take advantage of all the positives without the negatives.

• A Tool to use for Fraud – Being one step removed from your actual cash makes it harder for employees and third parties to steal your money. Getting fraudulent debt forgiven is generally easier and less time consuming than getting your money returned to your account.
• Purchases at a Discount – Reward programs and cash back deals, although meant to manipulate can be great to take advantage of under the right circumstances.
• Improved Cash Flow – By controlling when items can be paid for, you can time payments strategically.
• Data Management – Using different cards to track location / employee / department spend can lead to invaluable intelligence when making business decisions.