The business of business: Are You Paying Twice As Much As You Should Because of Your Credit Card?

Canadians are addicted to credit cards, and that’s not necessarily a bad thing. Credit cards offer many advantages over cash and debit, such as convenience, rewards, insurance and the ability to manage cash flows.

But there is a hidden cost to credit cards that prays on your psychological predisposition, without you even knowing it. It exploits the way your brain is hard-wired. The result? You may end up paying 50%-200% more for any given item using your credit card, than if you paid in cash.

Considering a card like the Tangerine cash back credit card earns 1-4% in rewards, Canadians ought to be asking themselves whether or not they’re losing more money than they’re making with their credit cards.

Credit cards take advantage of the fact that they separate the pleasure of purchasing, from the pain of paying. Apparently, kicking the can down the road is very attractive to consumers. So much so that we stop focusing on price and are willing to pay nearly double.

While I strongly encourage people to use credit cards instead of cash when shopping (might as well get rewarded for spending you’re going to make anyways), it’s even more important to be aware of the hidden pitfalls of credit cards.

Here’s just a bit of the research that explains and supports the “credit card premium” theory:

1. The Hirschman Study (1979): Hirschman’s research revealed that people who own multiple credit cards, make larger purchases.

2. The Feinberg Study (1986): Feinberg’s research revealed that people tip more when paying by credit card.

3. The Soman Study (1999): Soman’s study  showed that when people use their credit cards, they’re more likely to forget how much they spent on recent purchases.

4. The Journal of Consumer Research (2011): The JCR research paper revealed that people using credit cards focused more on product features, while those paying with cash focused more on price.

So what’s the lesson in all of this? Even if you’re paying your entire credit card bill down every month, thinking you’re doing the responsible thing, your credit card may still get the best of you.

The solution is simple. Become consciously aware of the “credit card premium.” To become consciously aware of the credit card premium, stick to a few helpful rules of thumb.

\First, pay down your credit card bill once a week, instead of once a month. This will ensure you become more aware of how much spending you’re actually doing and the impact of that spending.

Second, see if you can get your credit card company to send you a notification each time you use your credit card.

hird, use an online budget planner offered by many banks, that alerts you when you’ve reached your spending budget for a given time period.

Marc Felgar is a credit card expert & online entrepreneur from Montreal, QC. He is the CEO and founder of, which helps Canadians find the best credit card through online comparison tools, filters, credit card reviews and the latest deals and offers in the marketplace.

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