The underlying causes of credit card debt

Explore the many reasons people have debt, from emotional buying to need-based spending


People go into credit card debt for many reasons. Explore the underlying causes of credit card debt and learn how to manage that debt in a positive way.

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Credit card debt numbers are high, and what constitutes those numbers can tell us a great deal about what is happening with Americans’ financial situations and provide some insights into the overall economy.

People accrue credit card debt for many different reasons – from emotional spending to actual need-based purchases.

Credit card debt can impact you negatively in a number of ways, including damaging your credit score, cutting into your cash flow and paying a lot in interest charges alone.

First, we’ll take a look at some real, hidden costs that often become part of credit card debt, then we’ll ask the experts about the emotional aspects of racking up debt.

See related: Poll: Long-term credit card debt looms large in the face of coronavirus outbreak

Medical costs are big drivers of credit card debt

Some credit card debts are tough to avoid, according to Michael Micheletti, director of corporate communications at Freedom Financial Network, and one of those is medical debt, which can rack up very quickly.

Even “good” insurance does not usually mean full coverage of the total cost of medical services, he said.

Today, many plans are known as coinsurance plans – for example, an 80/20 plan means that insurance will cover 80% of the cost of service and the patient is responsible for the remaining 20%.

In addition, each health care plan has a maximum amount it will pay for any given service, and the patient generally must pay the difference.

All of these costs add up, and consumers often end up putting them on their credit cards, Micheletti said.

A hospital finance department will regularly try and get patients to prepay for procedures, such as giving birth, which can be thousands of dollars. Micheletti noted that many expecting families have no other choice than to put the expense on a credit card.

Medical costs can quickly become medical debt.

For many people, navigating the health care space is extremely challenging – medical bills from providers have short payment windows (usually in 30 days or less) and medical debt collectors are aggressive once you go beyond that time frame.

Also for many, the stopgap method is to put these medical costs onto credit cards, Micheletti said.

For those with insurance, premiums are often very high and impact monthly cash flow.

Insurance companies generally do not permit charging those premiums on a credit cards; for employees working for companies with insurance plans, premiums are typically taken directly out of paychecks and as such, these costs become part of monthly household expenses.

See related: When should you use medical credit cards?

With insurance premiums impacting cash flow and cash availability, people are more likely to put rising household expenses – utilities, phone and groceries – on the credit card.

After the financial crisis of a decade ago, homeownership rates went down and we started seeing tremendous increases in rents, Micheletti said.

Only recently have we seen homeownership rates level out to historical norms, yet rents continue to outpace income (at least in most major cities), so consumers are left with less money to pay everyday expenses and get in front of other debt, like student loan debt, he added.

In other words, some debt simply can’t be avoided – so the underlying cause for it is need.

Using a credit card consciously helps avoid negativity

But what if you’re using your credit cards for things other than housing, medical care or everyday expenses?

Jessica Caver Lindholm, writer, speaker, financial coach and founder of the website ToLivingFree, said she has used credit cards her entire life and has approached the debt she accumulated with them in many different ways.

“There was a time when I felt shame or regret around my credit card debt, and there were times when I felt at peace with it,” Lindholm said, “and that peace came from being able to identify the ‘why’ behind my spending.”

When it comes to credit cards, Lindholm believes there are two main types of debt – conscious and unconscious.

And she chooses to consciously use credit cards to gain access to money she wouldn’t have had otherwise.

Lindholm said if you use a credit card in a conscious way, there is no reason to have negative feelings about it – it’s simply a tool that allows you to pay something off over time as opposed to paying it all off at once.

If people can approach credit cards and credit card debt in that conscious way, she said, it removes any negative feelings like you’re lacking something, or fear or the need for validation.

What it comes down to is the purpose behind the purchase you are making, she added.

“I have found that if I ask myself if my purchases are coming from a place of love or fear, I can gain clarity on why I’m spending,” she said.

A love-based purchase comes with the deep knowledge that it’s a need or desire that is truly grounded inside you, she added, while a fear-based purchase occurs when you are looking for something outside of yourself to be filled by that purchase.

And fear-based purchases can become a black hole – they are just like any other addiction, Lindholm said.

Lindholm described fear-based purchases as those you make when you’re trying to prove something, “fit in” or self-validate.

For example, if you buy groceries at Whole Foods because you believe that’s what successful people do – and you feel like you’ll be viewed as successful only if you do – that is a fear-based purchase.

But if you choose to shop there because it always has what you want and it aligns with your values and the businesses you want to support, your purchases are love-based.

Fear-based purchases can give you a “high” in the moment, but it wears off quickly. The cycle perpetuates and leads to increased negativity.

Now, she uses credit cards because they make sense for her financially. Lindholm noted that using credit cards can be safer than using a debit card, plus there’s opportunity to get points, rewards and more.

See related: How to get out of credit card debt: 8 effective steps

Credit card debt could come from a place of unworthiness

“The underlying, internal issues that are usually at play among people with credit card debt is a feeling of unworthiness,” said Amanda Frances, who provides personal finance digital courses and hosts the weekly podcast “And She Rises,” designed for women entrepreneurs.

Many people don’t feel worthy of the things they use a credit card to purchase – in particular, they don’t feel deserving of the life they wanted to create or items they desired, she said.

When you identify yourself as someone who is worthy and capable of using credit cards and paying them off, you see the possibilities for how this can occur for you.

If you identify yourself as someone who is lacking or irresponsible, you are unable to imagine or create a life where the credit card debt does not exist.

As with anything in life, our internal belief system and thoughts and beliefs about ourselves determine and perpetuate our realities.

“Our actions, patterns, behaviors and subsequent consequences around our finances will naturally shift when we view ourselves as capable and worthy, while knowing that eliminating our debt is simply inevitable,” Frances said.

Bottom line

Whether you accumulate debt because of necessary expenditures, such as everyday expenses and medical bills or you rack it up due to emotional spending, the way you look at that debt is key.

If you have to spend money on credit cards to live, it’s important not to beat yourself up – stay calm and make a plan to pay it off.

And if you spend money emotionally it’s crucial to ask yourself why before you click that purchase button. Either way, your attitude about your debt could be a major factor in how you handle it.

Editorial Disclaimer

The editorial content on this page is based solely on the objective assessment of our writers and is not driven by advertising dollars. It has not been provided or commissioned by the credit card issuers. However, we may receive compensation when you click on links to products from our partners.

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