Credit cards are cleverly designed so that we can comfortably spend more than we make. One of these design features is that we are allowed to make repeated small purchases, yet the purchase ‘pain’ is limited to a mere twelve times a year. By grouping all of the monthly purchases together, we can roll the ‘pain’ into a singular point each month. If at that time we can not pay the card off, it is another month until we have to face it again. In the meantime we keep charging and interest keeps accruing. We often try to maximize pain avoidance and immediate gratification; credit cards cater to us nicely. Very intelligent design.
With that said, what is the next evolution in credit card design? Just as mortgage companies ‘evolved’ products like balloon payments and interest only loans, the credit card companies want to create ‘better’ products for us. I wouldn’t be surprised to see a card on the horizon that will offer fewer than 12 payments a year. I can see the advertisement now, “Tired of paying your credit card every month. Pay your credit card just one time a year”. Maybe we could even choose our own payment schedule. Sure the interest will still accrue, but we can avoid facing reality for a whole year! Let’s be vigilant in understanding the design of finance products, so that we can distinguish good products from the bad.