Jeff Stibel

Special to USA TODAY

Should you be using a credit card?

Most experts say no, because credit cards can be dangerous for consumers and businesses alike. For consumers, the pitfalls are that they have high interest rates and it is easy to rack up debt. For businesses, the fees can be high, sometimes upwards of 2% per swipe or more, which eats up profit. Despite these drawbacks, the truth is that credit cards are great.

Credit cards are far more convenient for individuals than carrying around cash and reward points carry additional benefits. Credit cards also come with insurance — virtually all banks guarantee purchases and many provide extra warranties. If your card is lost or stolen, no need to fret as you are rarely forced to pay the bill. Paying interest is no fun, but if you truly need the money, cash can’t extend you a loan. High interest rates on credit cards can be avoided. If you are diligent, you can go from one low-interest program to another until you can pay off your debt.

Businesses also gain huge value from credit card usage. Numerous experiments have proven that average purchases are higher when consumers use credit cards. This largely offsets fees. Subscription businesses benefit from automatic credit card billing, so they don’t have to worry about collecting money each month. All companies who accept credit cards benefit from fewer trips to the bank and lower risk of theft.

So why all the negativity around credit cards? The simple answer is that our brains can’t process the concept of credit. The average American household abuses credit cards, averaging over $16,000 in credit card debt. And you can bet that only a small fraction of that is low or no interest.

Credit defies our most basic brain system: Sense processing. It’s an easy concept to understand (even if it is a hard principle to follow). The more senses involved, the more real it is to the brain.

When humans started trading goods, it was a very tactile experience. Exchanging one wolf pelt for 12 fresh fish made use of many senses and provided a real comparison — and brains are great at making comparisons. There is a sense of pain and loss associated with paying for something, even though you want the item you are purchasing. That sense is acute when you can see and feel exactly what you are giving up. Twelve fish for one pelt “feels” about right.

When humans started using coins as currency to trade, we removed much of the pain by putting a degree of separation between what we were actually giving up and replaced it with coins, which have no intrinsic value. But at least coins have weight. Forking over 100 coins feels weightier, literally and figuratively than paying only 10 coins. In switching from barter to coins, we ended up paying just a bit more for things.

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Paper currency removed much of the weight of coins, but not all of it. Handing over your dollar bills, never to see them again, is still physical, so it feels like a loss. But not nearly the loss of coins, as research has shown that people pay more for things with paper than they do with coins (or pelts).

Credit cards remove that feeling of loss almost entirely. You may hand the cashier your card but he’ll hand it right back. And often, now you don’t even do that — retailers have learned that if you swipe your card yourself rather than handing it over, you’ll spend even more. Something about just swiping a piece of plastic in exchange for goods and services is a little too easy, a little too removed from reality.

Thinking Apple Pay or Square might save you? Think again: removing your wallet from the payment is psychologically even worse. Paying by iPhone almost seems like it’s free, doesn’t it? At this point, I bet you can guess what happens with online shopping. Nothing physical — no coins, no cash, no plastic —just a keyboard and a password. It isn’t even worth sharing the depressing experimental results. Suffice it to say it leads to excess spending.

If you are a business owner, it is imperative that you consider credit cards. You may think the cost is high: purchasing a card reader and paying service charges are not insignificant expenses. But credit cards drive sales. Don’t stop there: be the first on your street to offer new, alternative payment forms. By giving consumers choice, you give them freedom. The psychology of spending will give you an edge, but the savviest customers will benefit alongside you.

If you are a shopper, take account of your spending behavior. Are you losing more than you’re gaining with credit card spending? If you are a repeat over-spender, I will leave you with two tactics to become savvier. First, physically record every purchase. Second, check your balance every morning and write it on the same piece of paper each day. Studies have shown that our brains revert back to our senses when we make an accounting of our finances, and that keeps spending lower.

If all else fails, cut up your credit cards, put your cash in the bank, and start trading pelts.

Jeff Stibel is vice chairman of Dun & Bradstreet, a partner of Bryant Stibel and an entrepreneur who also happens to be a brain scientist. He is the USA TODAY bestselling author of Breakpoint and Wired for Thought. Follow him on Twitter at @stibel.