eli5 How do credit card companies make money out of people that pay their cards in full before the billing cycle and still get rewards?
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A lot of good responses here. Don’t forget about “friction”.
Friction is the ease of use. Dave Ramsey highlights these behaviors fairly regularly.
1. Cash=highest friction. Activates subconscious pain centers of the brain, meaning you are less likely to spend it. Akin to touching a hot stove, it hurts you emotionally whenever you hand over cash money.
2. Debit=middle friction. Activates less pain centers in the brain because it is connected to your checking account.
3. Credit=least friction. (Online shopping with a credit card on Amazon represents the absolute least friction possible, BTW) Least pain response in the brain, freely spending is easiest. You do not comprehend as much of a subconscious connection to your finances or wealth. What this means is you will use it more, and this is the goal of the cc company, maximum utilization for every card holder.
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