Rewards credit cards?

[mindaugas]

What do you guys think about rewards credit cards? Capital one has been sending me offers for both the quicksilver and venture. Quicksilver is 1.5% cash back on everything, no annual fee, venture is 2 miles for every dollar (effectively 2%) on everything but with a $59 annual fee (waived first year). If the decision is as simple as travel vs no travel then I'd go with the quicksilver since I won't be traveling in the next few years. The plan would be to use the card for monthly bills, pay it off to avoid interest, get 1.5% cash back. I'm diligent about paying off the balance each month.

[Rebecca Stapler]

I use credit cards for everything I can, and pay off the balance each month. If the card doesn't have rewards, I wouldn't use it!

The best card I've found is the AmEx Blue Cash preferred -- even though it has an annual fee, it has 6% cash back on groceries, up to $6,000/year. So, that translates to $360/year for using it the same way I would use it anyway. The non-free AmEx has 3% cash back on groceries, so just $180. I forget what the Preferred's annual fee is, but it's less than $180.

In fact, I've been taking MMM's advice and rolling credit card sign-up bonuses -- every time I meet the sign-up bonus, I close the card and open a new one with a new bonus. ($100 or so for the sign-up bonuses).

[seattlecyclone]

I think rewards cards are great! For the card to be worthwhile, you need to pay the balance in full each month, and you also need to make sure you don't buy anything that you would not have purchased if you had to pay cash. If these two things aren't a problem for you, not using a rewards credit card is essentially throwing money away on each and every purchase you make.

In general, my personal preference is to get cards that pay cash back (or points that can be redeemed for cash) instead of other things like airline miles, hotel points, etc. One reason is that you can redeem for cash at lower levels (often as low as $20) instead of having to save up for a whole airline ticket. Another reason is that the base rewards level on a lot of these cards is either 1% cash back or 1 airline mile per dollar spent. With 1% back I know I'm getting a penny back for every dollar I spend. With miles, it's harder to tell. Sometimes you can get lucky and find an award ticket where the cost in miles is low enough compared to the retail value that you get more than a penny of value out of each mile, but often this is not the case. I'll usually take the guaranteed penny now over the mile that may or may not end up being worth more than a penny at some point in the distant future.

One thing I would recommend is to get a few of these cards to optimize your rewards. I regularly rotate between three cards. I have a Barclaycard Rewards MasterCard that gives 2% back on gas, groceries, and utilities. I have an Amazon.com Visa from Chase that gives 3% back on purchases from Amazon.com and 2% back on restaurants, gas, and drug stores. I also have the Chase Freedom card that gives 5% back on a different category each quarter (currently gas; Amazon.com and certain department stores next quarter; other times it's restaurants or groceries or something else). All three cards pay 1% back on all purchases outside of their special categories. By using whichever card gives me the best cash back for each purchase, I am able to get an average of pretty close to 2% back on all my spending. I may have to look into adding that Quicksilver card to bring my default rewards level up to 1.5%.

[Jamesqf]

I think rewards cards are great! For the card to be worthwhile, you need to pay the balance in full each month...

Unless you get one of the ones that also offer X months zero interest from signing up.  (I think the largest X I've seen is 21 months.)  Then when the 0% interest period is up on the first card ($100 signup bonus, and 1-5% cash back), you get an offer for one (Chase Slate) that offers zero-fee balance transfers and 15 months at 0%...

All I have to say is that these people are nuts.

[avonlea]

We use cashback cards and, like stan, we use them for everything.  We only do this because we pay the balance in full each month.  If one has the willpower, I think they are a great tool to get a little extra money. We don't do the rolling over thing, but I think it's cool if someone enjoys finding all of those deals.

ETA:  I made a comment on another thread today calling credit cards plastic demons.  To clarify, I do think that they are not a good thing for society overall, but if you know the gimmicks the cc companies pull and can use the knowledge to make sure they don't get a dime of your money, I say go for it.

[seattlecyclone]

I think rewards cards are great! For the card to be worthwhile, you need to pay the balance in full each month...

Unless you get one of the ones that also offer X months zero interest from signing up.  (I think the largest X I've seen is 21 months.)  Then when the 0% interest period is up on the first card ($100 signup bonus, and 1-5% cash back), you get an offer for one (Chase Slate) that offers zero-fee balance transfers and 15 months at 0%...

All I have to say is that these people are nuts.

I've done this before. It's only "nuts" if you have any doubts about being able to pay the card off before the 0% promotional interest rate gives way to the normal, ridiculous 15-20% level. Suppose you have a 5% mortgage and a 0% credit card with a $5,000 credit limit. If you have maxed out the credit card with your everyday purchases and put your cash toward your mortgage instead of the credit card, you're basically earning $20/month from lower mortgage interest due to the fact that you could borrow for free from the credit card for a limited time. You just have to be very careful about having enough cash available at the end of the promo rate to pay off the entire balance. As always, this strategy fails if you buy anything with this credit card that you would not have been willing to buy with cash.

[Jackrabbit]

We have a credit card, and made sure ALL of purchases throughout the month are put on there.  Two reasons:

1) Mrs Jackrabbit now knows how much money she spends shopping, and how much I spend on gas.  She's shopping less and I've got a bike.
2) Points generated go toward paying off our mortgage.  We don't fly that often, nor stay in hotels, so we're putting everything on the card that we can.  About $300 per year gets paid off our mortgage. 

We even put our car and house insurance on that card, then pay it off that month.  We take money out each pay period in a separate account toward those bigger items: car, house and life insurance.  Then we use the card and just transfer that amount each time those purchases are made.

[fiveoclockshadow]

All I have to say is that these people are nuts.

No, they know most credit card holders are suckers and are willing to take the loss on the few who game the system.

I read an article that fewer places are offering these 0% periods as they have proved to be less profitable than they used to be.  Post crisis it seems enough people have singed finger tips still and don't fall for the trick as much as they did in the past.

Also, the safe rate of return is so low right now that introductory rate arbitrage doesn't pay as much to gamers as it did in the past - I've stopped doing the 0% thing though I did it a few times back when savings accounts yielded 5%.

[nawhite]

I'm currently using the barclaycard Arrival card which is 2.222% rewards on every single purchase as well as $400 in sign up bonuses when you spend $1000 in 3 months. $89 annual fee waived the first year.

I can redeem for travel by just paying for it with the card and then going to the website and saying "why yes, I would like to not have to pay for that flight. That sounds very nice"

If you don't travel and want the cash instead, you can redeem for a statement credit but its only 2% rewards in that case. Basically the extra .222% is because every time you redeem for travel you get 10% of your miles back. So spend 1000, get $20 in rewards, redeem, get $2 in rewards for redeeming, redeem those, get $0.20 for redeeming, etc.

The favorite rewards purchase I have going right now is my company's health insurance plan didn't meet my needs, so I got private and had them pay the difference in my salary. Then I pay for the private insurance with the credit card every month and get $8 in rewards. Nice little extra perk.

[Angelfishtitan]

Since I buy nearly everything by card anyway (whether debit or credit) to make tracking easier it makes a lot of sense to use rewards cards to get a little discount. I also do churning every once in a while because it is basically free money for a small credit score hit.

My regular use cards, none have yearly fees:

1 - Sallie Mae Rewards Card (now owned by Barclays) - 5% on gas, groceries, and books on the first $250, $250, and $750 you buy each month respectively. This is in my opinion my best card for category specific rewards.

2 - Citi Forward Card - 5% on restaurants and entertainment (not sure what that counts) plus extra points if you pay on time. The only issue is you can't redeem the points for cash, but they can be redeemed for gift cards or even in partial amounts for airfare.

3 - Capital One Cash Rewards (now Quicksilver) - 1.5% on everything else, think it is the best no category card without a yearly fee currently. Can redeem any amount of rewards, which is nice.

I use the ones with rotating categories (Chase Freedom, Citi Diamond Preferred) or any that are having special promotions as well, but generally their categories are already covered by my other cards.

Credit cards are a powerful tool. However, like most tools, an inexperienced or careless user will eventually get hurt.

[Jamesqf]

All I have to say is that these people are nuts.

I've done this before. It's only "nuts" if you have any doubts about being able to pay the card off before the 0% promotional interest rate gives way to the normal, ridiculous 15-20% level.

No, no, no!  I meant that the credit card companies are nuts, giving away free money like that :-)

I agree with what you said about having the cash to pay the cards off when the bill eventually comes due, and about not buying stuff you wouldn't buy if you were paying cash.  But all the money I haven't paid on those 0% credit cards went into my mutual funds, which are up 15-20% this last year.

[BC_Goldman]

I have two credit cards that see regular use. Both are Chase cards: Amazon.com and Freedom (originally Wawa Visa when I started it). I want to get some other rewards cards but I'm putting it off for now.

Current bonus on Chase Freedom is 5% on gas. I almost always buy my gas at Wawa and it finally occurred to me that I should see what happened if I bought a wawa gift card using Freedom. Turns out that it also earns 5% so now I know I can stockpile GC purchases to maximize the quarterly bonus and then use them during non-gas quarters to effectively keep getting the 5%. It should also work for any of the gcs that wawa sells but I haven't tested it.

[Christof]

Is your dream to fly First Class to an international destination? If not you should think twice about getting a credit card that pays miles as a bonus. Airlines are a strange business because price and cost are in no obvious relation. That allows airlines to sell the same First class ticket for either few miles or many dollars. The airline benfits either ways since even the miles price is above the cost.

With coach the spread between price and cost is much lower. In many cases you can buy a ticket for less than the cost of accumulating miles.

Whatever  you do, make sure not to spend more than you would without this credit card.

[beltim]

Is your dream to fly First Class to an international destination? If not you should think twice about getting a credit card that pays miles as a bonus. Airlines are a strange business because price and cost are in no obvious relation. That allows airlines to sell the same First class ticket for either few miles or many dollars. The airline benfits either ways since even the miles price is above the cost.

With coach the spread between price and cost is much lower. In many cases you can buy a ticket for less than the cost of accumulating miles.

Whatever  you do, make sure not to spend more than you would without this credit card.

I agree that it's important to consider carefully a credit card that gives miles, but there are plenty of cases where those miles are far more valuable than the cash rewards would be, on domestic and international travel in economy and business.  If you're going to travel anyway they can be quite valuable.

[Christof]

If you're going to travel anyway they can be quite valuable.

Yes, they can be... A  few random notes

Airlines regularly update their award charts. On average flights become more expensive. At the same time your miles become worth less because you cannot invest them like money and earn interest miles.

Airlines have full control over how many seats they offer for miles on each flight. Usually they give away flights they cannot sell. Great if you are flexible in time and destination. Frustrating if you need to be on a particular flight.

Having miles with one airline does narrow the view for most people. Miles with Delta might get you a ticket on Delta that is cheap compared to what Delta charges. But it still might be insane expensive compared to flying Spirit or taking a bus. It is easy to justify this with having the miles anyway when there is always an opportunity cost.

Credit cards rarely offer the exact amount of miles you need. If you get a lot more you might be tempted to maximize value by flying somewhere farther that you originally never intended to go. if you get less miles than you need, you are now trappend in the mileage game trying to get the required amount of miles with at least one airline by applyong for many different cards.

Collecting miles is a game, it is fun, but it should not be treated as a way of saving money any more than the lottery as a mean to become rich.