Why We Take on Credit Card Debt

Why do some people rack up huge credit card debts while others are able to handle their credit responsibly?

This is a question that puzzles everyone from psychologists to marketers to your Aunt Sheila, who wants to know why her sons are in such trouble with debt while you and your siblings are doing quite well, thank you very much.

While the specific mechanisms behind what makes some people more debt-prone than others are maddeningly difficult for researchers to tease out, there do seem to be some personality characteristics and lifestyle factors that may make people more likely to get into debt. These characteristics can be broken down into three potential risk factors for debt: demographic and economic factors, psychological factors, and attitudinal factors. (See also: Party Like It's 19.99: The Pscyhology of Pricing)

Demographic and Economic Factors

Poorer individuals are more likely to be in debt — a finding from learned researchers that I believe deserves a big collective "Duh!" from anyone who reads their findings. But, as obvious as that conclusion is, it's necessary for psychologists and researchers to start their investigation there in order to make certain they do not overlook anything.

Basically, you are more likely to have credit card debt if you are low-income, young, and surrounded by others who also have debt. Having very little money means you might rely on credit in order to make ends meet. Young people are more likely to have less income, as well, which is why they are more likely to be in debt. And seeing that your friends, family, and peers all struggle with credit card debt makes it more likely for you to accept debt as a part of life. Without a model for another way to live, you'll simply follow what you know.

Another important demographic risk factor is your relative income compared to your social sphere. If you make significantly less than your friends, you're likely to be in debt as you try to maintain a similar lifestyle — a classic case of "Keeping Up With the Joneses."

Psychological Factors

This is where things get more complicated. Psychologists have been investigating the reasons why some individuals are prone to debt while others pay off their credit cards each month for many years. While experts believe that there are some factors that should be able to predict indebtedness, no studies have been able to conclusively prove it. However, their hypotheses about locus of control, sense of self-efficacy, and coping strategies being related to proneness to debt all make a certain amount of sense, even if they have not yet been proven.

Locus of Control

This psychological theory refers to how individuals see their ability to control the events in their lives. People will either think of themselves as having an internal locus of control or an external one.

Those individuals with an internal locus of control feel that they have a great deal of power over their lives. If such an individual were to flunk a test, they would blame the bad grade on not having studied enough for it. Acing a test would be considered evidence that they were well-prepared.

An individual with an external locus of control does not feel nearly as in charge of their life. That individual doing poorly on the same test might think the test was too hard or the teacher wrote bad questions. What's truly depressing for individuals with an external locus of control is that doing well on that test wouldn't be attributed to a good job of studying. They are more inclined to think that the teacher was being too easy, or that they were simply lucky in their test-taking.

In short, internal locus of control types think "I am the master of my fate," while their external brethren are singing "Nobody knows the trouble I've seen."

Psychologists theorize that individuals with an internal locus of control are less likely to get into debt. The belief is that these internal, go-getter types will recognize that their finances are entirely within their control, so they will make proactive decisions about their money management. If they do end up in debt, they will recognize that they are responsible for the predicament, and that it is up to them to fix the problem.

External locus of control types, on the other hand, may feel as though nothing they do matters much. They may believe that it's impossible to beat the banks at their game; that living with debt is how The Man keeps them down; and that any financial gains they experience are entirely attributable to luck.

An excellent example in the personal finance community of someone who clearly has an internal locus of control is Mary Hunt. She and her family wracked up over $100,000 in credit card debt over a decade. While many people in her position would have declared bankruptcy and started over, Mary and her family decided to pay off every penny of what they owed, which meant she had to look for work outside the home and completely change her lifestyle. It took the Hunt family 13 years to pay it all off. But to Mary, it was clear she had gotten herself into the mess and it was up to her to get back out of it again.


This is a related concept to locus of control, in that your self-efficacy measures just how competent you feel in a particular area of expertise. For instance, an automotive engineer would feel very little stress if her car were to break down while on a trip. Just give that engineer some tools and some time, and she will likely be able to either fix or diagnose the problem. The engineer has a high sense of self-efficacy when it comes to automotive issues.

On the other hand, that same engineer might break into a cold sweat at the idea of having to manage her money. While people may have a sense of high self-efficacy in one area of their lives, they may feel out of their depth in another area. Having low self-efficacy means that you believe the task at hand is harder than it is, and you are more likely to be stressed and potentially avoid the work.

When it comes to credit card debt, psychologists theorize that individuals with low self-efficacy are more likely to get into debt and stay there. The theory suggests that these individuals choose not to think about their financial decisions because they feel stressed — but that does not stop them from making poor decisions. In addition, they may not see themselves as up to the task of tackling their debt or the behaviors that got them there.

Low self-efficacy is also correlated with low self-esteem. That means that individuals who do not feel competent in their lives will look for other ways to give themselves a boost — like by going shopping, for instance.

Coping Strategies

There is a reason why we call that artificial boost through shopping "retail therapy." What you're doing when indulging in recreational shopping is using a coping strategy for dealing with your feelings of helplessness.

In fact, the psychology of addiction can help us to understand why it is we head to the mall (or to the donut shop, or to the bar) after a bad day at work. According to Dr. Lance Dodes of Psychology Today, "every addictive act is preceded by a feeling of helplessness or powerlessness. Addictive behavior functions to repair this underlying feeling of helplessness."

Basically, many individuals have created a coping strategy of shopping in order to deal with their feelings of helplessness. This is why you will sometimes see someone get so stressed over their Visa bill that they head off to the nearest Best Buy and drop $200 on new video games. Their sense of helplessness over the size of the bill is spurring them on to shop more, even though that is the worst possible course of action.

Individuals who are not debt-prone (or addiction-prone) are more likely to find constructive coping strategies, such as exercise, crafts, or spending time with friends.

Attitudinal Factors

One last aspect of the credit card debt problem has to do with attitudes toward both debt and social standing. Individuals who regard debt as no big deal are more likely to be in debt compared to those who consider debt to be frightening, shameful, or stressful.

In some ways, this is another "Duh!" conclusion. Of course you're more likely to be in debt if you don't see debt as problematic.

However, there is more to it than just attitude. Where does that attitude come from? In fact, your attitude toward debt-tolerance is also tied to your social sphere. This can help answer Aunt Sheila's question about her slacker kids — if you grow up in a family that is in debt, and everyone you know is in debt, then that will help to shape your blasé attitude toward debt. Again, none of this is revolutionary thinking, but it can be very difficult to see if you are in the midst of it.

It's very interesting to look on the flip side of the coin, as well. There are individuals who successfully get out of or stay out of debt, even if their peers, family, and friends all struggle with it. Why are they able to maintain a debt-averse attitude in the midst of a great deal of debt-tolerance?

The answer might have something to do with the psychological characteristics of successful individuals. Psychologists have been studying wildly successful entrepreneurs like Bill Gates and Warren Buffett for years, trying to determine what makes them different from everyone else. According to Matthew Herper of Forbes, one of these differences is the fact that "entrepreneurs don't care what other people think about them. They're just happy to go ahead and do what they're doing."

The attitude that it doesn't matter what other people think of your choices would be an important one for someone saying no to credit card debt. The pressure to conform to societal mores regarding debt can be very difficult to resist. But if you have the attitude that it doesn't matter if your friends and family think you're cheap, you can successfully and consistently avoid that pressure.

The Bottom Line

While Aunt Sheila's 30-year-old, basement-dwelling sons may have any number of factors influencing their credit card debt, psychologists believe that we are all influenced by our demographics and economics, our personal psychology, and our attitudes when it comes to our finances. None of those are easy to change, but working to see yourself as the master of your life and your future, and working to ignore societal and peer pressures, can do wonders to help you improve your finances.

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Guest's picture

I've conducted my own study and found a result overlooked in this article. I went to Wal-Mart and took a good look around. Some people are just plain duuuumb. It's a harsh social truth to accept, I know, but some folks are just born stupid. ...Or they decided to not read books and skip school, so they could intentionally become stupid. I'm not sure about that yet. Watched a man with a shopping cart loaded with junk he didn't need. Four attempts on two credit cards all declined. He finally whipped down $60 cash in an angry huff at the teenage cashier as though his idiocy was her fault. D-U-M-B. (All there is to it.)

Max Wong's picture

Regarding Attitudinal factors: People who doubt the power of advertising should look no further than the VISA "priceless" commercials. VISA effectively sold the idea that debt is "worth it" to millions of people.

Guest's picture

Ahh yes, this is bringing me back to the days of my college psych classes. Another major factor I feel blinds people when it comes to their finances is confirmation bias. Sometimes people just don't want to admit they can't afford certain things and will just look for someone to tell them that they can afford it or they deserve it. As much as people need to monitor themselves when it comes to finances it's important for friends to keep an eye on them as well and don't feed into this debilitating bias.

Guest's picture

I'd like more friends like you ;)

Guest's picture
Ryan Hart

An interesting look at why we take on credit card debt. Obviously, identifying these obstacles is just the first step. How can we use these same triggers to help motivate people to get out of debt?

Guest's picture

I know it's not the point of the article, but should it be "wrack" or "rack"? I've always seen "rack up debt."

Amy Lu's picture
Amy Lu

You're right, it should be rack -- thanks for catching that, Guest! I've fixed the typo. =)