How do you define ‘large purchase’?New market research from the consumer finance website wallethub.com reveals the attitudes and implications of our $1 trillion consumer debt. Reprinted with permission. Visit here.
More than 1 in 3 people are afraid they’ll max out their credit card when making a large purchase, according to a new WalletHub credit cards survey released today. This concern is well-founded, considering Americans began 2020 with over $1 trillion in total credit card debt.
Understanding consumers’ attitudes and choices regarding large purchases is particularly important at this time of the year, with bills from holiday shopping coming due and Valentine’s Day looming large.
- Women max out less – Women are about 10 percent less likely than men to have maxed out a card at least once.
- Age shapes our definition of “large” – Millennials are twice as likely as baby boomers to choose “over $100” as the benchmark for a large purchase.
- Politics come into play when paying – Republicans are 3 times more likely to use cash than Democrats. Despite this, Democrats are also less likely to have maxed out a credit card for a large purchase.
- Rewards motivate the rich – High-earners are three times more likely than low-earners to choose their payment method based on which provides the most rewards. Low income consumers are more motivated by avoiding debt.
Q&A with WalletHub CEO Odysseas Papadimitriou
Should people fear maxing out their credit card when making a large purchase?
“Around 91 million Americans fear maxing out their credit card on a large purchase, so people who feel that way definitely aren’t alone. A healthy amount of fear is justified, too. We already owe more than $1 trillion in credit card debt, and issues stemming from large purchases more often concern people making too many of them, for the wrong reasons.”
What tips do you have for people who fear maxing out their credit card when making a large purchase?
“There are ways to manage your available credit and thus avoid worrying about not having enough spending power if you need to pay for a big-ticket necessity. It starts with regularly checking your balance, which will make you more conscious of how much you have spent and thus reduce the chances of both maxing out your card when making a large purchase as well as overspending overall. Paying your credit card bill multiple times per month is another useful trick, especially before a large purchase. This will free up more of your credit line for use. People who consistently pay their monthly bills on time and have low credit utilization may also want to consider asking for a credit limit increase.”
Is it natural for people’s definition of a “large” purchase to change over time?
“It is perfectly natural for a person’s definition of a ‘large’ purchase to change over time. Our perspectives on pretty much everything evolve as we age, and it’s very clear why that would be the case with money. The more money an individual earns, and the easier it is to earn it, the easier it becomes to part with. That in turn raises the bar for what’s considered a big purchase. Unfortunately, the same can also be said about credit card balances. People who already have a lot of debt might not be as concerned about racking up another $500 or $1,000 in balances, thinking it’s just another drop in the bucket. But the bottom line is that money is money, and every $1 is worth the same amount.”
A copy of the full report can be found here.