Using Credit Cards for rewards

[thelurker]

Hi,
I was talking to someone recently that was telling me about how they purposely put all their transactions in life through a specific credit card account that generates reward points/flights/cashback. The guy is quite on top of his finances and manages to never pay any interest by living within his allocated budget and subsequently paying the balance off each month.

Just wondering what peoples thoughts are on this?

I know that using high interest credit cards are something that should be avoided but are their any reasons against this system if you are not actually paying any interest.

Look forward to hearing your thoughts.

[surfhb]

Of course!    All sorts of advantages:

Using your ATM can open your bank account to theft.....this has happened 4 times for me. 
Don't have to carry cash
Rewards points....we went on a free trip to Mexico in March
Your purchases are insured

Just pay off your balance every month and don't take on interest charges

[GizmoTX]

We have never paid any attention to the rate of interest because we pay all cards in full every month & never pay interest. I'm sure our CC interest rates are sky high but it doesn't matter. We do try to maximize rewards.

[Annie_R]

I quite enjoy opening/closing cards just for the sign on bonuses and rewards although it has made me have problems recently trying to get a balance transfer to manage medical fees. I have a spreadsheet of my cards and calendar events of when to close them. not everyone finds this enjoyable though and if you don't have a steady employer it might be less profitable for you, also obvs you will have to pay off the balances of every card on time for this to actually be worthwhile. I also use a password manager to keep track of all my online accounts as each card generally has to be with a new bank/lender. my current credit limit is around 50k across 7 cards.

[wawot1]

Don't forget about the psychology behind credit cards.

For many people, taking a $20 bill out of your wallet feels very different than swiping a $20 purchase on your credit card - it seems more real, is less abstract, and might prevent you from making some purchases that you don't really need.

Might you get 1.5% back on your $20 purchase if you put it on a credit card?  Sure.  But might you avoid making an unnecessary purchase if you feel the pain every time you pull out a $20 bill from your wallet, rather than just swiping a piece of plastic?  I think for many people the answer is yes.

[HipGnosis]

I've paid for the vast (vast) majority of my purchases over the last 10 yrs with multiple credit cards that I pay in full every month and get rewards.
I have their interest rates on file somewhere, but I don't think about them because I never pay interest.
I put what they get the best rewards on them with a label maker.  For everything else, I use a card that gets 2% on everything.
I always carry a little cash, but sometimes a $100 ATM withdrawal lasts me for many months.  I have to have my PIN in my phone as a contact (no, it's not under Bank ATM PIN) because I use it so infrequently.

I resist spending cash because I know I will have no record of it.  I saved receipts for a few yrs, but that's just so messy.  And some receipts fade very quickly.

[ACyclist]

I am not a financial wiz by any means, so I am not sure if this thought process is smart.

What we do is use the cards for purchases and let the card company pay us cash.  The most important thing is paying in full every month...no matter what.  I take the spending out of my "check book" and then just pay in full.  Also, I carefully check the card for fraud. 

I avoid annual fee cards, because I have made the mistake of forgetting to close one on time.  They offer teaser free annual fee and then jack it up on you.

[ketchup]

Don't forget about the psychology behind credit cards.

For many people, taking a $20 bill out of your wallet feels very different than swiping a $20 purchase on your credit card - it seems more real, is less abstract, and might prevent you from making some purchases that you don't really need.

Might you get 1.5% back on your $20 purchase if you put it on a credit card?  Sure.  But might you avoid making an unnecessary purchase if you feel the pain every time you pull out a $20 bill from your wallet, rather than just swiping a piece of plastic?  I think for many people the answer is yes.

I honestly feel the opposite.  To me, cash is fleeting, ethereal.  There's no record of it ever being spent, so it's like fake spending in my mind.  If I make a purchase with a credit card, I'll have a record of that transaction forever, especially if it's an online purchase and I'll have the receipt in my email forever too.  I'm not exactly the type to be silly-loose about spending in the first place, but having cash on me makes it more likely.

99% of my spending is on credit cards.  I also churn when I can, to the tune of about half a million bonus points/miles so far this year.  It's leaving money on the table not to, really.

[englishteacheralex]

We are in the camp that uses credit cards for everything in order to get points. We do a little churning for the sign up bonuses, but nothing too crazy. Usually we can get two free airline tickets to the mainland during high season every year--that amounts to about $2k for free.

We're also very frugal, pay the balance every month, and track every cent like a hawk. I hate cash. It disappears so quickly and I have no record of my spending except a pocketful of receipts. The credit card records every purchase and my little budget line item in mint goes from green to yellow to red. Psychologically that is a powerful motivator to put the card back in my wallet.

[thelurker]

Thanks everyone for the valuable insight.

In regards to the discussion about the psychology of actually holding physical cash, I definitely see both sides of the argument. Personally, I believe I fall in the spend more when I have physical cash camp, as my major guilty spend generally revolves around small transactions (I'm a sucker for sneaking in another meal) that generally require cash/ don't accept card payments.

I'll definitely have a look into getting onboard with this.

[JLee]

I filed a price protection claim today after noticing that a camera I purchased for $449 in August is now $399.99.  $49.01 will be refunded to me.

I love credit cards.

[kayvent]

I have switched predominantly to my debit card. This is more so a useless protest than a strategic plot.

Premiums credit cards charge 2-3% in fees to the merchant. Do I think merchants are generous businesses that simply absorb that cost? No, they pass it unto us. I see it as an arms race or race to the bottom. Do you have the best rewards card and beat the average that the merchant has increased prices by? If not better get that....oops, since everyone has switched to that the fees went up and the merchant jacked prices again.

I particularly hope people clawback their usage of credit cards, premium credit cards with high merchant fees in particular; however, barring that unlikely event I hope more merchants start giving a 2-3% discount to users of debt/cash (well, a surcharge to credit card users but phrasing is key). The latter would satisfy me and may push more people to do the former.

[chasesfish]

The best resource I've found is Travel Miles 101...solid advice if you want to do this.

[surfhb]

I have switched predominantly to my debit card. This is more so a useless protest than a strategic plot.

Premiums credit cards charge 2-3% in fees to the merchant. Do I think merchants are generous businesses that simply absorb that cost? No, they pass it unto us. I see it as an arms race or race to the bottom. Do you have the best rewards card and beat the average that the merchant has increased prices by? If not better get that....oops, since everyone has switched to that the fees went up and the merchant jacked prices again.

I particularly hope people clawback their usage of credit cards, premium credit cards with high merchant fees in particular; however, barring that unlikely event I hope more merchants start giving a 2-3% discount to users of debt/cash (well, a surcharge to credit card users but phrasing is key). The latter would satisfy me and may push more people to do the former.

People in hell want ice water too 😉   

Since this is all a unlikely event I say take advantage of the points.

[ketchup]

I have switched predominantly to my debit card. This is more so a useless protest than a strategic plot.

Premiums credit cards charge 2-3% in fees to the merchant. Do I think merchants are generous businesses that simply absorb that cost? No, they pass it unto us. I see it as an arms race or race to the bottom. Do you have the best rewards card and beat the average that the merchant has increased prices by? If not better get that....oops, since everyone has switched to that the fees went up and the merchant jacked prices again.

I particularly hope people clawback their usage of credit cards, premium credit cards with high merchant fees in particular; however, barring that unlikely event I hope more merchants start giving a 2-3% discount to users of debt/cash (well, a surcharge to credit card users but phrasing is key). The latter would satisfy me and may push more people to do the former.

People in hell want ice water too 😉   

Since this is all a unlikely event I say take advantage of the points.

The more likely (but still unlikely) outcome would be regulation capping the transaction fee (which has happened in other countries), which would reduce the ability of banks to offer CC rewards.

[wawot1]

Thanks everyone for the valuable insight.

In regards to the discussion about the psychology of actually holding physical cash, I definitely see both sides of the argument. Personally, I believe I fall in the spend more when I have physical cash camp, as my major guilty spend generally revolves around small transactions (I'm a sucker for sneaking in another meal) that generally require cash/ don't accept card payments.

I'll definitely have a look into getting onboard with this.

There's a fascinating brief talk about this subject by Dan Ariely (Behavioral Economist - author of Predictably Irrational - the book highly recommended by MMM).  Check it out:   https://www.youtube.com/watch?v=PCujWv7Mc8o

[HipGnosis]

Thanks everyone for the valuable insight.

In regards to the discussion about the psychology of actually holding physical cash, I definitely see both sides of the argument. Personally, I believe I fall in the spend more when I have physical cash camp, as my major guilty spend generally revolves around small transactions (I'm a sucker for sneaking in another meal) that generally require cash/ don't accept card payments.

I'll definitely have a look into getting onboard with this.

This is a very KEY point.  Everyone has to find and use what works for them. 
Having multiple credit cards that are 'assigned' different uses (for their maximum rewards) essentially eliminates temptation for me to use them frivolously.

Who/where doesn't accept credit cards these days?

[Broadway2019]

Just want to add...I just booked 2 first class tickets to Europe, 7 nights in Amsterdam and one night in Brussels all using my points acquired this year alone.

I spend 99% on credit cards and turn cards throughout the year. Not a lot but usually 3-4 cards a year. It really adds up and allows us to travel at a much more discounted rate. So going to Amsterdam, Brussels, and Paris over 13 days and out of pocket for flights, train to brussels/paris, and all hotels is $1000. This is flying first class and staying at 4-5 star hotels with breakfast included in prime locations.

I consider travel hacking one of the best things to do and it does not take much time once you know what you are doing.

[ketchup]

Who/where doesn't accept credit cards these days?

My list has gotten smaller over the last few years, but now it's down to:
-bus
-parking (as admission to events, common in GF's line of work)
-this really good Korean place near work
-some farmer's market vendors

All in all, maybe a few hundred bucks a year at this point.

[bacchi]

Thanks everyone for the valuable insight.

In regards to the discussion about the psychology of actually holding physical cash, I definitely see both sides of the argument. Personally, I believe I fall in the spend more when I have physical cash camp, as my major guilty spend generally revolves around small transactions (I'm a sucker for sneaking in another meal) that generally require cash/ don't accept card payments.

I'll definitely have a look into getting onboard with this.

There's a fascinating brief talk about this subject by Dan Ariely (Behavioral Economist - author of Predictably Irrational - the book highly recommended by MMM).  Check it out:   https://www.youtube.com/watch?v=PCujWv7Mc8o

Great video.

This research needs to be applied to those who keep a daily record of their credit card purchases.

I know that when I have cash, I tend to make frivolous purchases. Hungry? Buy a taco from a trailer instead of waiting an hour to eat at home.. Oh, is a car USB charger on sale for $5? Yeah, we have one but we might need two. Sold! Gum? I like gum. Etc., etc.

Then I just write off the entire cash amount as "miscellaneous."

[coldestcat]

Kwarden13 Are those points from this year just putting all your expenses on your credit card or do you have to do other things like buy giftcards with your credit card? I havent gotten very deep into travel hacking but am very intrigued. I just dont have a great grasp of the "extras" beyond just putting all expenses on CC, like my example above that may not be even accurate but that is my shallow understanding of the churning aspect of travel hacking.

[bacchi]

Kwarden13 Are those points from this year just putting all your expenses on your credit card or do you have to do other things like buy giftcards with your credit card? I havent gotten very deep into travel hacking but am very intrigued. I just dont have a great grasp of the "extras" beyond just putting all expenses on CC, like my example above that may not be even accurate but that is my shallow understanding of the churning aspect of travel hacking.

Most, if not all, of what he did can be done if your natural spend rate is $1000/month.

Barclay AA for $90 (first purchase + annual fee) = 60,000 miles
Citi AA card for $3000/3 = 60,000 miles ==> 120k miles total

IHG card for $1000/3 = 2 nights*
Hyatt card 40k points for $2000/3 = 2 nights*

That's a $6k spend and $90. If you need more miles, the Delta and United cards have low minimums.

It's obviously easier if your spouse participates (or lets you participate for them). Add in another Barclay AA for 180k miles total and another IHG or Hilton for another 2 nights.



* both hotel cards used to be 2 night vouchers instead of points

[Rubic]

I know that using high interest credit cards are something that should be avoided but are their any reasons against this system if you are not actually paying any interest.

High interest rates on credit cards don't bother me because I never
carry a balance, nor should anyone who is using credit cards.

The bonus rewards are real (to the tune of several thousand dollars
per year for me), but it's getting harder to take advantage of the
offers.  A recent article in Financial Times compared CC churners
to card counters at the blackjack tables.  I think that's a pretty good
analogy.  Like casinos, the banks are getting better at spotting the
card counters and are closing the loopholes for credit card churners.

[Car Jack]

There are so many profitable games that we can play by using credit cards that I can't even keep track of them all.  In my area, we have Stop & Shop who gives gas discount points for spending $$.  It's 10 cents/gallon discount for each $100 in purchases.  There are specials and bonuses that are not insignificant.  Before I go on, the gas is with Shell.  Now, Shell has their own system called fuel rewards.  If you link your master card and your stop & shop card, they then give you 15 cents per gallon discount for every $100 spent at stop and shop.  My card is a citi double cash where I get 2% cash back.  This past week, stop & shop had a coupon in their mailed circular for 2X gas points with a minimum $50 purchase.  Although they say one per household, I used mine and my wife used her father's code and both were accepted.  So the rundown:

Buying at Stop & Shop....groceries that I would buy anyways.  I bought $50 and my wife bought $50.  Both with 2x coupons, so we get 20 cents off a gallon and since we spent $100 on the master card, $2 back from them.  Shell sees $100 spent on the linked master card at stop and shop so gives us another 15 cents a gallon off.  Shell always adds 5 cents a gallon off when you purchase with the fuel rewards card (it's just a member card, not a credit card).  So now I go and buy gas.  I could buy in cash and still get the 20 cent stop and shop plus 5 cents fuel rewards, for 25 cents off or with the credit card, I'll get 40 cents a gallon off and since I'm using a gas 3% reward card, another cc cash rebate.  Gas is (let's say) $2.50 a gallon and I'm going to buy 20 gallons (the max that is allowed for the discounts).

Cash costs $2.50 minus 25 or $2.25 times 20 or $45. 

Using my 3% back card and the linked stuff, $2.50 minus 40 or $2.10 times 20 or $42 and 3% back, which is $1.26.

Cash cost me $145 for the groceries and gas using all available discounts.
Credit cost me $142 with $3.26 cash back or $138.74.

Sounds all complicated, but all I actually did here was use my credit card instead of cash.  $6.26 for doing absolutely nothing on this one silly set of 2 purchases.

[englishteacheralex]

OH--also, just bought a new washing machine because the old one died. Come to find out, most credit cards, including the one we bought the washing machine with, offer a year's worth of an extended warranty in addition to the year that comes with the product. Pretty great score; it'll be interesting to see if we wind up using it. The washing machine we bought is not a high rated one; we just bought the cheapest one we could find because it made sense under the circumstances. Getting two years of warranty made me pretty stoked.

[thelurker]

Who/where doesn't accept credit cards these days?

My list has gotten smaller over the last few years, but now it's down to:
-bus
-parking (as admission to events, common in GF's line of work)
-this really good Korean place near work
-some farmer's market vendors

All in all, maybe a few hundred bucks a year at this point.

I wish it wasn't but it is not that unusual where I live, mostly food outlets. A lot will at least have a minimum spend which is beneficial for my spending as it will make me walk away from the place.

[kayvent]

I have switched predominantly to my debit card. This is more so a useless protest than a strategic plot.

Premiums credit cards charge 2-3% in fees to the merchant. Do I think merchants are generous businesses that simply absorb that cost? No, they pass it unto us. I see it as an arms race or race to the bottom. Do you have the best rewards card and beat the average that the merchant has increased prices by? If not better get that....oops, since everyone has switched to that the fees went up and the merchant jacked prices again.

I particularly hope people clawback their usage of credit cards, premium credit cards with high merchant fees in particular; however, barring that unlikely event I hope more merchants start giving a 2-3% discount to users of debt/cash (well, a surcharge to credit card users but phrasing is key). The latter would satisfy me and may push more people to do the former.

People in hell want ice water too 😉   

Since this is all a unlikely event I say take advantage of the points.

The more likely (but still unlikely) outcome would be regulation capping the transaction fee (which has happened in other countries), which would reduce the ability of banks to offer CC rewards.

In Canada, two recent rulings were made. I disagree with both of them. One was a ruling for the CC companies to refund merchants some of the transaction fees¹ and the other was to give the merchants the ability to apply a surcharge^2,3 to customers using a credit card.

¹ Except in cases like price fixing or anti-trust, I don't believe the government should have the authority to reverse consensual business agreements
² I think the merchants should have independently negotiated this. 
³ The places in my area that do this instead call it a 3% discount for debit & cash users. It actually means they are charging a 100/97 = 3.1% surcharge to credit card users. I haven't personally seen a card that gives this type of benefit except with credit card churning.

[nobody123]

I honestly feel the opposite.  To me, cash is fleeting, ethereal.  There's no record of it ever being spent, so it's like fake spending in my mind.  If I make a purchase with a credit card, I'll have a record of that transaction forever, especially if it's an online purchase and I'll have the receipt in my email forever too.  I'm not exactly the type to be silly-loose about spending in the first place, but having cash on me makes it more likely.

99% of my spending is on credit cards.  I also churn when I can, to the tune of about half a million bonus points/miles so far this year.  It's leaving money on the table not to, really.

+1.  If my wife and I have cash, it tends to disappear in small chunks and we have no idea where it went.  For that reason, we put everything possible on our credit cards that we pay off at the end of the month and get the cash back rewards.

[NextTime]

I have switched predominantly to my debit card. This is more so a useless protest than a strategic plot.

Premiums credit cards charge 2-3% in fees to the merchant. Do I think merchants are generous businesses that simply absorb that cost? No, they pass it unto us. I see it as an arms race or race to the bottom. Do you have the best rewards card and beat the average that the merchant has increased prices by? If not better get that....oops, since everyone has switched to that the fees went up and the merchant jacked prices again.

I particularly hope people clawback their usage of credit cards, premium credit cards with high merchant fees in particular; however, barring that unlikely event I hope more merchants start giving a 2-3% discount to users of debt/cash (well, a surcharge to credit card users but phrasing is key). The latter would satisfy me and may push more people to do the former.

People in hell want ice water too 😉   

Since this is all a unlikely event I say take advantage of the points.

The more likely (but still unlikely) outcome would be regulation capping the transaction fee (which has happened in other countries), which would reduce the ability of banks to offer CC rewards.

In Canada, two recent rulings were made. I disagree with both of them. One was a ruling for the CC companies to refund merchants some of the transaction fees¹ and the other was to give the merchants the ability to apply a surcharge^2,3 to customers using a credit card.

¹ Except in cases like price fixing or anti-trust, I don't believe the government should have the authority to reverse consensual business agreements
² I think the merchants should have independently negotiated this. 
³ The places in my area that do this instead call it a 3% discount for debit & cash users. It actually means they are charging a 100/97 = 3.1% surcharge to credit card users. I haven't personally seen a card that gives this type of benefit except with credit card churning.

In that case I would go out of my way to NOT shop at a place that charges a surcharge.

I'm not using a debit card and sure as hell not walking around with a pocket full of cash.

[lexde]

 I make thousands of dollars a year “churning” credit card rewards. I go on international vacations and don’t pay anything for flights or accommodations and generally even my food pays for itself while I’m there.

It takes time and precision, and can go horribly wrong if you don’t do your research first. But I have about $5k sitting across a few accounts just waiting to be optimized. Highly recommended if you’re organized and on top of your finances.


Sent from my iPhone using Tapatalk

[Dr.Jeckyl]

This is what I do as well. I prefer to be able to see all my transactions vs. cash. Cash can too easily be spent without record and this way transactions from wife or myself can be seen and recorded properly. I usually use my cash back rewards for Christmas gifts. Although, I've been thinking of signing up for a travel rewards card.

I may jump into the credit churning but I haven't felt like "managing" different cards.

[Ann]

I know that using high interest credit cards are something that should be avoided but are their any reasons against this system if you are not actually paying any interest.

I make the analogy to alcohol.  A glass of wine a day may be beneficial (uh, I remember some study came out about 15 or 20 years ago, it might have been refuted).  If it is, it still wouldn't be recommended to alcoholics, because the risk of abuse associated with the temptation out-weighs the benefit.  If one is NOT tempted to over-indulge, then it can be healthy.  There's not a real reason to avoid even high interest credit cards if you use them responsibly.  If you don't, you're asking for a world of trouble.

I love credit cards!

[kayvent]

I have switched predominantly to my debit card. This is more so a useless protest than a strategic plot.

Premiums credit cards charge 2-3% in fees to the merchant. Do I think merchants are generous businesses that simply absorb that cost? No, they pass it unto us. I see it as an arms race or race to the bottom. Do you have the best rewards card and beat the average that the merchant has increased prices by? If not better get that....oops, since everyone has switched to that the fees went up and the merchant jacked prices again.

I particularly hope people clawback their usage of credit cards, premium credit cards with high merchant fees in particular; however, barring that unlikely event I hope more merchants start giving a 2-3% discount to users of debt/cash (well, a surcharge to credit card users but phrasing is key). The latter would satisfy me and may push more people to do the former.

People in hell want ice water too 😉   

Since this is all a unlikely event I say take advantage of the points.

The more likely (but still unlikely) outcome would be regulation capping the transaction fee (which has happened in other countries), which would reduce the ability of banks to offer CC rewards.

In Canada, two recent rulings were made. I disagree with both of them. One was a ruling for the CC companies to refund merchants some of the transaction fees¹ and the other was to give the merchants the ability to apply a surcharge^2,3 to customers using a credit card.

¹ Except in cases like price fixing or anti-trust, I don't believe the government should have the authority to reverse consensual business agreements
² I think the merchants should have independently negotiated this. 
³ The places in my area that do this instead call it a 3% discount for debit & cash users. It actually means they are charging a 100/97 = 3.1% surcharge to credit card users. I haven't personally seen a card that gives this type of benefit except with credit card churning.

In that case I would go out of my way to NOT shop at a place that charges a surcharge.

I'm not using a debit card and sure as hell not walking around with a pocket full of cash.

Everywhere you go charges a surcharge for a credit card. It's either baked into the price or (as in the case for some places now) it will be explicit. Merchants aren't kind souls that will pay 1-3% to Visa/Mastercard/etc without raising prices to compensate.

[englishteacheralex]

Yeah, the credit card surcharge resulting in marked up prices regardless of how you pay is just a fact of life in America. To me, this is a compelling reason to use credit cards for the points. I have no numbers to back this up, but my rationale is that rewards cards mean I'm just getting back what the system is taking from me.

As far as I can tell, everything is set up for credit cards nowadays. There is zero advantage to using cash...unless you have an issue with spending too much money and using cash in the "envelope system" is a good psychological trick to keep you from going over your limit.

Apparently there used to be a time when paying cash for large purchases got you a better deal on the item; my personal experience tells me that is no longer the case. Car and appliance salesmen have no use for cash; their whole system is set up for them to make the majority of their money off you financing the product.

In my opinion, in today's society, the most prudent thing to do as far as money goes is set yourself up with a system that tracks your credit card spending in an easily accessible way (mint, YNAB, etc) and track your credit card purchases exactly as you would if you were spending with cash. This is actually not that difficult to do. Just treat the credit card as a debit card that happens to have a ridiculous option of overspending that only fools would do, since it results in usurious interest rates and anyway, who would ever spend more than their means?

[HildaCorners]

I just got and set up a rewards card. Here's how I did it.

I don't travel much, so miles aren't a good reward for me. I got the CITI Double Cash card, 1% cash back on purchases, another 1% when you pay for them, so 2% off everything. No fee, no odd categories. [I use my debit card for groceries, and don't buy enough gas to matter.]

As soon as I got the card I:

• activated it
• set up automatic payment from my checking account. Always paid in full, on time.
• transferred some of my automatic bills from an old card to the new one
• set up YNAB to download spending on the card

The second item is the key. Since I download my spending, I can make sure my checking account always has enough to pay the bill.

I don't spend money if I can avoid it, cash or credit, so that's not a factor for me.