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Rethinking Credit Card Rewards – Are They Worth It?

by Debt Destroyer on October 25, 2009

credit-card-rewards-pile5% cashback sounds good right?

Or does it?

Baker at Man vs Debtrecently posted on why he doesn’t use credit cards. His personal morals don’t allow him to support an industry that he doesn’t agree with.  I thought he made a great case and I applaud his ideals (I can relate since I’m an occasional idealist as well).  But will it change my mind on credit cards rewards?

Hmmm…that’s a tough one.

I primarily use a Discover card. As many are aware, Discover card offers cashback on all purchases. In addition to that, they run quarterly specials that offer 5% cashback.  This quarter’s(Oct-Dec) special is for two of my favorite things:

  1. Food (Grocery stores & restaurants)
  2. Movies (Movie theaters and video rental stores).

You long time readers might remember that my Christmas budget is financed through my cashback amount. This system has worked out great for us. Last year we had $420 to spend thanks to this system.

The same long time readers will remember that I started paying cash for more of my purchases than I used to.  While I love the fact that my credit card bills are much lower then they used to be, this has reeked havoc on my cashback rewards.  It looks like we’ll only have a little over $200 this year.

But $200 is better than nothing right?

While I do love my rewards, I get to also see the other side of the equation.

My wife is a photographer.  Her clients sometimes pay for her services via credit card.  Even though she has a super low transaction fee (1.5%) which comes to chump change, she hates paying it.  I don’t blame her, as the silent partner, I get to see how the “chump change” can add up in a hurry and take a bite out of a small business.

With the passage of credit card reform, it was clear that plenty of people have similar feelings to Baker when it comes to the credit card industry.  I’ve seen the darker side of the industry first hand.

After my father died we went through his paperwork and found out he had recently declared bankruptcy a 2nd time. His mail was then forwarded to me.  Almost all of it was credit card offers.  I couldn’t believe it.

So will I join Baker’s cause, cut up my cards and stop supporting the credit industry, or will I stop paying cash and start charging groceries for an extra 5% off?

I signed up for the quarterly special.

I guess I fall into the camp that thinks credit cards are like tools (Which is funny because I’m not handy at all). If you use them correctly, they can make things easier. If you use them incorrectly you can really screw things up.  And as ESPN taught me, “A good craftsman doesn’t blame his tools.

On a personal note I’ll be curious to see if I end up spending more by reverting back to credit cards at the grocery store.   Over the last three months I’ve spent an average of $381.43 on groceries.

The extra rewards will be worthless if I end up spending more than I normally would.  Which is exactly what Discover and my local grocery store want me to do.

So where do you stand in this debate?  Are you cutting up your cards, or are you swiping away?

Unitl next time,

-DD

{ 7 comments… read them below or add one }

Baker October 26, 2009 at 12:45 am

Wow, this was a very well-rounded and level-headed look at the issue!

I totally understand the ‘tool’ stance, as well. Although, dynamite is an incredibly useful tool, but I’m not going to keep a stockpile in my garage.

At the end of the day, I don’t *have* to have credit cards in my life, so I’ve elected not to. I lose out a little bit of perks (although we were never as high as 400+ so it’s different risk/reward), but I gain peace of mind.

Great discussion!

Reply

Debt Destroyer October 26, 2009 at 12:27 pm

Of course it’s a great discussion, you started it.

Don’t keep your dynamite in your garage, you should keep in in the basement. I keep my TNT right next to our old toddler clothes.

Seriously though, I say good for you on not needing credit cards. I think without a doubt that most people would be better off without them.

Reply

Jonathan@Friends&Money October 26, 2009 at 3:26 pm

I use a capital one cashback credit card which pays 1% cashback, which is quite poor but it’s always a bonus to get money back on purchases i would have made anyway

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Ed October 27, 2009 at 8:14 am

Cashback programs are a trap!
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Debt Destroyer October 29, 2009 at 12:04 am

@ Jonathan – 1% isn’t that great, but like you said if you’re going to be making the purchases anyway then it’s better than nothing.

@ Ed – Thank you. It’s still a classic :)

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Credit Card Chaser October 30, 2009 at 3:35 am

Yep, credit cards are tools that can be used responsibly or irresponsibly just like any other financial instrument. It does seem rather silly to act as if it is anyone’s fault but the cardholder that is doing the actual spending’s fault when credit cards are misused when you really step back and think about it :) I personally do all that I can to use my 2 cash back cards whenever I buy anything.

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Eric Nernberg January 22, 2010 at 3:30 pm

Many banks are now offering reward programs on regular debit cards. While these reward programs might not finance an entire holiday’s worth of gifts, it’s a great option for people who prefer not to use credit cards.

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