Let’s face it: credit cards are awesome. They are the worst kind of awesome. You can use them anywhere, they give you rewards and services, and they’re shiny. But their sexy virtual money is just too easy to spend. Using a credit card is easy, but having a credit card can be problematic.
The benefits and services offered by credit card companies are a bit of a siren song, luring us to spend more. And for good reason. Credit card companies offer services and benefits well beyond what many retailers provide: concierge services, travel arrangements, identity theft insurance, extended product warranties, and the much ballyhoo’d airline miles. But reliance on credit cards can develop into a difficult personal finance situation.
Buying things with a credit card is very, very easy. Managing debt is tricky. But we’re smart people, right? It’s not hard to understand that a credit card is a loan, and that the loan must be paid or you will accrue interest and owe more. Simple, right? The problem is, I have other stuff on my mind. I have other things I’d rather worry about than a credit card bill.
The ideal way to use a credit card is to do so responsibly; keep tabs on your spending, and keep your balance as close to zero as possible. But this is more easily said than done.
It’s way too easy to rack up debt with a credit card by means of:
- Not paying off your balance in full each month or only making minimum payments
- Missing a payment due to life events and having your rate jacked up
- Paying for something with a credit card because you don’t have cash on hand, but when you do have cash on hand, you forget to pay in full
- Having the spending process automated by storing credit card info in ecommerce profiles like Paypal or Amazon, making it so, so easy to overspend
- Scenarios where you forget about the purchase, such as using the card to pay for a dinner with multiple diners and collecting cash from everyone, but then not making a deposit later to offset the expense
…and once the total begins to rise and that default interest rate kicks in, you’re hating life.
Managing credit card debt, from a user experience standpoint, begins the minute the purchase is made and continues through the payment process.
The Paper Process
I hate this. Paper packing my mailbox coming in and going out, well, let’s just say that any enterprising identity thief could do well with a credit payment slip and a signed check.
The Online Process
Online banking and online bill pay and your online cardmember center and all the things that you have to deal with just to pay a credit card bill online… These can be convoluted. So much so that I have actually missed a payment because I paid it through my bank’s bill pay service, but was charged a late fee because the bank and the credit card company don’t work together very well. Did you know that a lot of your online pill pay transactions are actually executed as bank-issued paper checks? What a waste.
All in all, payment and credit management can even be clumsy when it’s done correctly. On top of that, trying to keep your balance in mind while you work through your personal finances can create substantial cognitive overhead. An no one wants cognitive overhead, right?
So there are a few problems here that can be addressed with improved task management and feedback flow for the user and simplified payment management for the institutions involved.
Here’s an idea for a new way of staying on top of credit card spending and payment. This doesn’t exist right now, as far as I know.
UPDATE: Some credit card companies are adopting text message alerts.
The Persona
Angie is 26. She is an analyst for a research firm and makes a decent living. She has her paycheck direct-deposited into her bank account and uses online banking. She hasn’t set foot into a bank branch in years. She frequents facebook, match.com, and Daily Candy. Her cell phone and computer are vital to her social and professional life.
She lives in Washington DC but, like most people in the region, is a transplant from another part of the country. She grew up just outside of Chicago and goes home somewhat regularly for holidays. She signed up for a credit card that gives her frequent flyer miles based on her spending in an attempt to ease the financial burden of travel, but she knows that credit card companies are always out to get you. She works too hard for her money to let it slip away.
Use Case
Angie is at the mall. She sees a J. Crew skirt she has wanted for a while and decides to buy it. She finds her size, tries it on, and heads to the register. In her purse is cash, a debit card, a credit card, and a cell phone. She reaches for the credit card and purchases the skirt. As the cashier hands her a neatly-wrapped J.Crew parcel, her cell-phone buzzes with a text message. The message reads:
Angie: You just spent $138.54 on a purchase from J. Crew using your credit card #3576. Would you like to pay this off now? Reply with “Y” to pay in full, “N” to ignore, or another dollar amount to make a partial payment. Thank you.”
Angie replies “Y” to the number and her credit card company or bank initiates an automated payment of $138.54. This text message also acts as a theft detection device, informing Angie when there is activity on her card.
The next day, after the day’s banking transactions have gone through, Angie receives another text message that confirms her recent payment and provides an affirmation for paying off her debt in a timely fashion.
Angie: This message confirms that your payment of $138.54 has been received. That’s one debt you won’t have to worry about. Great job!
Keeping the management process top-of-mind, and not the debt, will help motivate and reinforce positive spending habits.
You may wonder why Angie wouldn’t just use her debit card if she had the money. Tendr allows her to use her bank account’s real money while racking up airline miles from her credit card’s transactions. Real money means no debt. Airline miles means she saves money this holiday season when she heads home to Chicago.
This is not a way to beat the system. It is, however, a way to make the most out of your credit spending. You can perform all these tasks already by manually tracking and paying expenses. This is meant to simplify that process, reaching a level of efficiency that promotes spending without debt. Think of it as a way to snap the consumer back to the reality of spending actual money and not virtual money, as so many credit-heavy consumers do.
Credit card companies make money by charging you interest on your debt. Interest is only accrued when your debt sits around for a while. On the other hand, card member benefits (airline miles, cash back, Upromise contributions) are awarded based on spending. So spend the money to get the benefits but, pay it off before they have the chance to charge you interest. Do it on the fly via text messaging and never worry about being late with a credit card payment again.
And while you’re out shopping hit the food court. Get one of those big floppy pretzels while you confirm your payment. Financial stability tastes great, doesn’t it?
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