I have written about Credit Cards before here. Today, I want to talk about credit cards and points. As I have mentioned in the past, when my wife and I were getting out of debt we didn’t own one card. In fact it has been since 2007 that I had a credit card.
There are many cards out there with different reward programs. You can get flight rewards, or cash back. Some give you hotel stays or special deals on shopping at certain stores. Recently I heard about Capital One giving 5% cash back for purchasing at Walmart online.
All these cards have a huge caveat behind them that most people don’t know. Are you ready for it? Sit on that for a moment.
My wife and I recently got our first credit cards. We got our card at the end of September. We knew we were going to make certain big purchases and decided to take the plunge on an experimental purpose. Long story short because of the big purchases we were going to make anyway we have about $3,828.00 in free flights. That included bonus from signing up etc.
I have to admit I have been hesitant to share this because many of the people I counsel are drowning in debt. The number one culprit outside of student loans is credit cards. I still counsel people who are in debt to cut up those credit cards or even freeze them if they don’t want to Cut them up. The goal is to stop getting further into debt. It is robbing you of your future.
How do I reconcile my advice with what I am doing now? For one I have been debt free for years. I have a six month emergency fund. I have a budget and I am on pace to retire a millionaire. I like to compare it with driving. Not everyone is responsible enough to get behind the wheel. If that is you, then you have no business owning a credit card despite the rewards. If you are not responsible, you will end up in debt.
Also, and this key for me, I don’t spend any money on the credit card that isn’t already in my bank. In essence I am using the card as a debit card. My budgeting app YNAB helps me with that. It helps me use my credit card like a debit card. I also pay off my credit card twice a month and might consider paying it off every Friday.
The moment you put money on a card that isn’t already in your bank account you are in dangerous territory. It should tell you that you aren’t living on a budget. That your financial house is on shaky ground. It tells you that you are chasing points.
Remember that I wrote all these cards have one caveat? It’s a caveat that most people are not aware of. When you pay with a credit card you tend to over spend by 12-18%. Read about that here. Most people don’t even realize it. This tends to happen to people who don’t have a budget. If you have a budget and you use your card like a debt card, then you won’t over spend. Know that caveat and get that budget.
One last thing here is Dave’s advice on chasing points. His advice is spot on if you are not responsible.
In the mean time I’ll take my $3,828 in free flights for money I was already going to spend. However, please don’t think you will make yourself rich by chasing points.
If you have questions don’t hesitate to ask here. Take charge of your money!
Your biggest cheerleader on social media,
P.S. Day 282 please pray for the 7.2 million goal for 2020