Which would you prefer: to have $20,000 in the bank and owe $20,000 on credit cards, or to have $0 in the bank and owe nothing on credit cards?

Do emotions take over?

Thinking about it rationally (and given only those two choices) it makes more sense to have $0 in the bank and owe nothing.

The interest you’ll pay on $20,000 in credit card debt far outweighs any interest you might earn on $20,000 in the bank, so you would actually be losing money if you chose to keep money in the bank while in debt.

I suspect most people would give the rational answer if asked what someone else should do, but when you look at what people really do, the results are often different. Emotions take over.

What people really do

People keep money in the bank instead of using it to pay off debt. That’s because our actions are not so rational. How we feel about money guides our choices more often than not. We feel safer with money in the bank. This is the case even though it costs us to carry debt, and even though the safety is really just an illusion. We don’t seem to get the disconnect.

Getting into debt in the first place isn’t all that rational either, especially credit card debt. Sure, sometimes there are exceptions. If one of my loved ones needed life-saving treatment and the absolute only way I had to pay for it was with a credit card, you can bet I’d be slapping down the plastic.

Confusing inconvenience with real emergencies

But many people start their debt story by getting a credit card “just for emergencies”. Before they know it, there’s an emergency every month. Unless it causes you to be stranded without water on a summer day in Death Valley, your car breaking down is not an emergency. It’s an inconvenience.

It’s not logical to depend on potential debt for emergencies instead of saving up money or planning ahead for those (not so) unusual months. If you can’t seem to get ahead, it’s because you’re either spending more money than you can afford to spend, you don’t have enough income, or both.

Maybe it’s time to give our irrational money minds a talking to, so we can start aligning our behavior with what we know is best for us.