John wrote a great post this week on ways to maximize your credit card reward points. He made some great points on how to get those awesome rewards which can result in free travel and free places to stay. Don’t get me wrong, I love earning my credit card rewards, but I also know that not everyone is like John and I. Since this is a site about growing your wealth, I wanted to talk about the subject of earning credit card rewards, but doing it in a way which doesn’t slow your wealth creation.
More Rewards = More Spending
While you can get more points by signing up for another card or getting a card for your spouse, these only work if you plan on hitting the required spend threshold. Some cards give you points after your first purchase, then others make you spend x amount in x time. Think the US Airways Card and the Hawaiian Airlines credit card, respectively. When you have to meet a required spend limit, then it means you have to use the card.
People like myself, who have been in credit card debt before, understand that you shouldn’t use your credit card to buy things you can’t afford. I use my credit cards for every purchase. What keeps me on track is I use them just like I would my debit card. I don’t buy more crap just to get rewards. I spend on the things I normally would. The rewards are just that, rewards. I am rewarded for my regular spending. Yes, I can get more rewards, but I would have to specnd more. I am not willing to do that at this time.
Credit Card Rewards Are Just Rewards
I have learned a lot about credit card churning and the process of earning those sweet rewards. I have learned a ton from my good blogging friend, Holly. She is good at churning cards and keeping those rewards flowing. She is also really good with her money. She how that ties together? If you are good with your money, then you can be good with credit card rewards.
The one thing you should remember is credit card rewards are just rewards. You have to spend money to make money, right! The credit card company is rewarding you for spending money on your credit card. Their hopes are you will not make your full payment each month and then they will get you with interest. Think of it this way. If you have a cash back card, like the Discover it card, then you can earn 1% back on all your purchases. I am not going to talk about the rotating 5% categories as those are different every quarter. Let’s say your credit card has a 12.99% interest rate on it. If you don’t pay off your entire balance at the end of the month, who do you think has won? Your 1% cash back, or Discover’s 12.99% they are charging you on the balance? Let’s just say you lost big time.
Most people who don’t pay off their cards each month don’t realize this math. While it is simple to see who is losing out, you can only be successful getting rewards if you can manage your money appropriately. Don’t be jaded by the fact that you are getting free money by spending. It is not free. It can cost you if you don’t make your payments in full. The reason why banks give out these rewards is because there are far more people who don’t pay off their balances each month than there are who do. I used to be one who would only pay the minimum balance. Now, I pay everything in full each month. I changed how I used credit cards and I am enjoying my rewards. That doesn’t mean I would still do it if I found I was spending more than I should be.
Credit cards don’t control my life, I control them. I choose when I use them and where. I am in control of my spending and that’s why I love earning rewards. It is just a nice way to get something back from the credit card company after giving them so much money for so many years.
Credit card rewards are great, but don’t overdo them. You can fall into the debt trap quickly if you are not careful!