Imagine you want to buy a furniture set and a vacation. Which one would you be more willing to go into debt for? If you’re like most people, you probably think you’re more likely to borrow for the set of furniture. It’s practical, long-lasting, and “worth” using debt. But it turns out that this perspective only explains borrowing in a small minority of situations.

The one important factor that fundamentally shapes people’s decisions to borrow is the borrowing context. People tend to consider using borrowed funds in two contexts and depending on which context they’re in, people’s attitudes about what purchases they’re willing to borrow for drastically change. This is the finding in our latest study, forthcoming in the Journal of Consumer Research.

Context 1: ‘How to pay’ decisions

One reason people might incur debt is to take advantage of attractive financing. For example, Amazon.com AMZN, -0.24%   provides promotional financing that allows you to pay for purchases over time with a 0% introductory APR. Although you may have the means to pay for those purchases with cash on hand, you might consider financing the purchase anyway.

Context 2: ‘Whether to buy’ decisions

Another far more common reason people may use debt is because they cannot pay for their purchases with other means. Perhaps they are waiting for their next pay check, or they have designated their savings to other things (expenses, other purchases, investments). Either way, it makes it challenging to acquire a purchase without using debt. People then face a trade-off between using debt, or forgoing their purchase for now.

How do these two contexts change the kinds of purchases people will fund with debt?

When considering “how to pay,” people often rely on considerations like the purchase’s practicality and how long it will last. This line of thinking often leads people to go into debt for purchases like furniture rather than vacations.

Conversely, when considering “whether to buy,” people mostly consider whether they are OK with forgoing their purchase for now. This line of thinking leads people to be more willing to go into debt for purchases like vacations rather than furniture. Postponing experiences feels more consequential. For example, putting off a summer vacation can feel like losing out on that vacation altogether. Even though you could go on vacation over the Christmas break, you may still feel like you missed out on the original summer vacation. In contrast, buying furniture at Christmas instead of during the summer is less likely to make you feel like you missed out.

Spending Behaviour

In a dataset from the Bureau of Labor Statistics that includes spending behavior from 30,242 households, we found that people who spent more on experiences rather than material goods were also more likely to have greater credit card debt and to have paid more in credit card financing charges. We also saw this pattern in people’s likelihood of taking on a peer-to-peer loan. Using a large dataset from one of the biggest U.S. peer-to-peer lending companies, we found that people were more likely to have peer-to-peer loans for experiential purchases (for example, weddings or vacations) as compared to material purchases (such as swimming pools or motorcycles).

Further experiments we conducted in a controlled lab setting found similar patterns. One study showed that people were 98% more likely to borrow for a material purchase rather than an experience when they were in a “how to pay” context. Their preferences reversed when they were in a “whether to buy” context, with people in that condition being 16% more likely to borrow for experiences.

What does this mean for you?

If you have gone into debt for an experience, you are not alone. The average American household spends $12,800 annually on discretionary purchases and has $7,200 in credit-card debt. Indeed, a recent survey found that 74% of Americans have borrowed to pay for a vacation.

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