Reward Credit Cards: Ripoff or Real Deal?
I recently ran across an interesting article about reward credit cards over on CNN/Money. In it, the author argued that reward programs are often a bad deal for consumers because: (1) they encourage you to spend more money, (2) reward cards often have higher interest rates, and (3) it can be difficult to actually access and use your rewards. Some also carry annual fees (in my experience, this is most of true of frequent flyer mileage credit cards).
Honestly, I remain unconvinced that credit cards cause you to spend more. In some cases they do, but I’d be willing to bet that it varies on a case-by-case basis. By extension, I have a hard time believing that a reward credit card will induce you to spend more than a regular credit card.
As for having higher interest rates, the last thing you should be doing if you’re carrying a balance is worrying about rewards. If you have a balance, instead focus on taking advantage of one of the many 0% balance transfer credit card offers that are out there floating around.
Regarding difficulty in accessing your rewards, be sure to select a true cash back credit card, such as the Chase Freedom Rewards card or, for big spenders, the Amex Blue Cash Rewards card. With the Chase freedom card, accessing your cash back is as easy as requesting a check online, and they even add $50 to your bounty if you build up $200 in rewards. It’s even easier with the Amex Blue card, as they automatically credit your bonus to your account on your cardmember anniversary.
The bottom line here is that, if you’re smart about how you use your reward credit cards, there’s a decent amount of free cash to be had.
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Hear, Hear!!
My thoughts exactly. I’m going to spend more because I get 3% back??? I’m going to buy MORE gas for my car? The points/cash we get back is a bonus for stuff we already spend money on, it’s a way to get a little something in return. And as far as difficulty in cashing in the bonuses I’ve had no problems at all. Those that have problems likely are not reading the written process sent when they applied for the card.
Comment by Eric — Jun 6th 2008 @ 1:36 pmTotally agree. Whenever I hear about “people spend more with credit cards” statistics I remember this example about misuse of statistics: “on the average, this desease affects men in their 50s. There are two known cases - a 2 year old boy and a 98 year old man”. This is very similar with cards: we know that many people carry balances, and a few carry large balances. This people spend a lot more than they would without cards. Take one person that spends 100% more using credit cards and 9 people spending about the same, and you’ll get “people spend 10% more on average”. I haven’t seen a single study that actually looked at the distribution or that showed that those who pay their balancess in full spend more than they would otherwise.
Another issue I see with all the “credit cards cause people to …” messages is the desire to blame something other than oneself for one’s problems. In this case - credit cards. Credit cards aren’t magically enchanted to scream “buy, buy” or to pinch you if you walk out of a store without buying something. We have free will, and it should take more than a piece of plastic to rob us of it.
Comment by kitty — Jun 8th 2008 @ 3:11 pm