Jan 17 2008

Credit card rewards can be good (or really bad)

My husband and I have a few credit cards and a joint debit card account.

All have some type of “rewards” program.

Our debit card rewards program gives us points for every dollar spent, and I think more points if we use it at certain types of stores. Recently, we earned enough points to get a $50 gift card to a restaurant.

The gift card arrived in the mail the other day, and we plan to use it soon. We’ll spend all $50 on the two of us–drinks that aren’t water, an appetizer, two entrees, and dessert. We never do that, and if we didn’t have that gift card, we’d be getting much less.

One credit card that I plan to close this summer gave us enough points to get a $25 Amazon gift certificate. I expect to get that within a month or two, and put it toward buying a wedding gift for my sister-in-law, if at all possible.

The credit card that we plan to keep gives us cash back rewards. We’ve gotten a few hundred back to date.

It’s nice to get those rewards, but I’m wondering: Can the idea of getting rewards help you spend money where you shouldn’t?

I’d say this is really possible.

Credit card companies wouldn’t offer an incentive program if they wouldn’t be making gobs of money off of it.

A consumer might make a purchase, knowing they’ll earn “points” or whatever, even if they really don’t need the item. Or worse, they’ll only make minimum payments on the account.

The above scenario is a terrible use of a card incentive program.

On the other hand, if you’re responsible with your plastic, rewards programs can actually be rewarding.

For instance, if you really and truly were going to spend a certain amount of money on something anyway, you might as well get a little something back for it, right?

A few weeks ago, I called to close my credit card account linked to the Amazon program. The lady on the other end of the phone effectively talked me out of it. She said that I only needed 200 more points to get the reward. Further, she said if I made four transactions with it this month, I’d get an extra $10 gift certificate. I thought about it, and remembered that we’d be buying plane tickets soon–enough money to give us the remaining points.

It was worthwhile for me to keep the card open a little longer so I could get this reward. We aren’t taking out a mortgage any time soon, so it shouldn’t have a negative impact on my credit score.

Cash back incentives and gift cards and such can be an incentive to stick with a bank or credit card company.

If you do a rewards program right, you won’t lose money in the process.

What do you think about rewards programs? Do you use any? 



16 Responses to “Credit card rewards can be good (or really bad)”

  1. You may want to keep your cards open but put them someplace where they will be safe and will not tempt you. Part of your credit score is based on the length of your open credit accounts – having older cards in good standing will help your score. For this reason, I recommend that if you can handle the temptation of having plastic and not using it, you may want to consider leaving the card open. It won’t really hurt – the hit to your credit score happened when you applied for the card.

    Just something to consider.

  2. Hi AB-

    Yeah, we keep all unused cards at home in a safe place. We typically carry and use just the debit or one credit cards.

    I’m leaving my first credit card open, even though I don’t use it, since it’s my longest credit history.

    But, I’ve heard that sometimes having several credit cards open (even if they all have zero balances) can hurt you when you try to apply for a mortgage. The lender could say, “well, you don’t have debt now, but as soon as this mortgage goes through, you could charge a bunch of things to your card and then be unable to pay your mortgage.”

    I don’t know how legit this is, and I’ll look in to that more soon.

  3. I have a couple of the cash-back ones. My only problem is when I miss the deadline paying them. Which I have done. Twice. One late fee can eat up well over six months of rewards for me (I don’t buy that much stuff).

    I told myself that if it happens a third time, I’m closing the accounts because I clearly cannot be trusted with them. But so far I just make sure to set up a payment online as soon as the bill comes in. (Except last month when I put it off for some reason and barely made it!!)

    I feel like I’m good at not buying more stuff just to get the reward, though.

    I do feel bad pulling out a credit card for everything sometimes, like at my local food coop, because I know they have to pay a percentage to the credit card company. However, I use it gleefully at a certain drug store because of all the times they’ve tricked me into paying more than I thought I was paying there.

  4. I’m considering signing up for a credit card for frequent flyer miles. There is also a special debit card that goes towards the miles, as well, through my bank. It would be my first credit card, but it would be good for accumulating miles, because we have to fly when we travel. The program is through our preferred airline, which is rather “high-end” and is nice for those extra long flights. It’s our only motivation for signing up for those.

  5. We have one main credit card that we use, that gives cash back rewards, and I LOVE it. We put all our “normal” purchases on it — groceries, gasoline, etc. and make payments every week so we never show a large balance. As I keep track in MS Money, I deduct from the checking account as I add to the charge account and download both frequently, so if we were to go over somehow despite having a budget (as in missing something) I would see it right away. So we never pay interest, but get free cash back. Can’t beat that. =o)

    I second the comment above about watching out with closing cards, though. While it’s true that you don’t want to have too much available credit, “too much” is within reason. You also want to show that you have enough credit — that people were willing to give it to you. Having several cards won’t hurt you, as long as they don’t all have $50K limits! And closing cards will hurt your score, although it’s usually a temporary ding — I closed a credit card with a short history and my scores dropped 20 points each. And of course, they just changed the FICO model, so we’re all going to have to learn some of the new intricacies as well.

  6. I have a rewards program on my debit card. It paid for a good portion of my husband’s Christmas presents — gift cards to his favorite store.

  7. I’ve never yet had a rewards card (or any credit cards) so I’m not sure how I’d deal with it. If I do get one, it’ll definitely be a rewards one, though. It’d more worthwhile.

  8. My one credit card with rewards is used to purchase things online for a friend of ours. He pays me at the time i order and immediatly put the $ on the card so i do not forget. So far he has bought two lap tops, a fridge for the semi, and parts for the semi. These have all been big ticket items so i have received some nice rewards. We have paid off our other rewards card before Christmas, but i put part of Christmas on their and am planning on having it paid of by the end of February.
    I think that you have to be really disciplined to use a credit card in any situation.

  9. one of my credit card i use a accident budget … such as if i don’t have a cash and that time a come to Emergency Room.
    so i never get a reward from my credit card

  10. I have a Shell MC that has no annual fee (with 5 uses at a Shell Station) and saves me 5% off of each gas purchase. I use this card a lot and the rewards add up quickly.

    My FF MC will get the axe as soon as I have to pay a yearly fee. (had it waived the last two years by attempting to cancel) When I will have to pay that fee, it’s cheaper for me to buy the plane ticket with as little plane travel as I do on my own dime.

    Carrying any balance on these cards would negate any ‘perks’ as would having to pay the annual fee. Because of that, I’m extra careful pay the balance off as each transaction posts.

  11. We used a credit card for all our budgeted purchases for a long time. We’d pay it off at the end of the month. It was well worth it – we’ve probably made well over $1000 in the past couple years.

    I did notice, though, that the first year there was no limit to how much you could get and I think we managed to get about $600 back. The second year there was a limit of $500, and the third $300. The card was competitive, so we got 5% back at gas stations, grocery stores, and sit-down restaurants, and 1% elsewhere. We met our limit each year. I found out recently that the program had changed again, and now it’s a straight 1% back, no matter where you buy something, and the limit is low. So check your program frequently! They might change the terms without notifying you! But for those that can do it responsibly, it’s well worth it! :)

  12. Let’s just say I haven’t paid for airfare in about 4 years thanks to my Southwest Credit Card…So, YES I LOVE LOVE LOVE Credit Card incentive programs.

  13. PS You inspired me to publish a post I wrote a while back on this very subject: http://lorisupermom.blogspot.com/2008/01/using-credit-cards-to-your-advantage.html

  14. I have a rewards credit card. I use it for convenience and for security when buying things online, and I pay it off every month. They pay the cash back in January, and I got just over $6 for the past year. I’ve started paying some of my utility bills using the credit card instead of check to increase the rewards I’ll earn this year. Odds are, I’m not going to feel compelled to,say, run up my water bill to get cash back.

  15. I love my “cash back” rewards. I put everything that I can on that card: daycare, utilities, gas, & groceries, any other large purchases.

    Then I cash out at the end of the year and use it for my Christmas budget.

    **But for this to work, you have to pay off entire balance each month, because as noted in other comments, the fees & interest will wipe out any reward**

  16. It is nice to read sensible advice on using credit cards. I also have found cash back cards to be useful. But after my bad experience with Discover Card (where they refused to pay the cash back earned over several years) I would be reluctant to trust such a company. I certainly will not deal with them again.

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Hey! I'm Kacie, wife to Shane and mother to Jonathan (7), Vivienne (5) and Amelia (2) . I write about my family's finance: how we save money, improve our spending, and plan for the future.

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