A friend of mine puts all of her expenses on a credit card (rent, food, gas, etc) and then pays it off every month for the points. For the most part how much do you have to be spending to make a rewards credit card worthwhile? What are some potential downsides to this method?
Hi Monique. There are some great cash back rewards cards that are out here. A great place to take a look and see what you think is http://www.cardhub.com/credit-cards/cash-back/ - I used to work with Odysseas at Capital One, and he's one of the smartest people I've ever come across.
You do want to be careful, though, as studies show that when you use a credit card, you don't activate the same pain centers in the brain that you do when you spend cash. As a result, you generally spend about 12% more when you use a credit card than you do when you use cash.
Because your limbic system isn't firing when you use a credit card (it's a delayed purchase, and future pain doesn't count in your limbic system), you're more apt to reason your way into spending - http://www.hullfinancialplanning.com/credit-card-debt-and-drug-addiction-are-they-related/
Even in a perceived "down" economy, we're still spending like drunken sailors - http://www.cardhub.com/edu/q3-2012-credit-card-debt-study/
Therefore, I recommend using these types of credit cards in the following situations:
Hope this helps!
Hi Monique, I have to admit I do this too. I guess the only consideration is the annual fee and whether or not you can truly pay it off evry month. I use the regular American Express. I have my cell phone bill, cable bill, groceries and a few other things added to it. I actully go home and make a direct payment out of my checking every time I add something. So far I have qualified for $500 to $700 off an airline ticket every year. The annual fee is $95 but for me it is still worth it. Don't let it get away from you though. Discover might be a decent rewards card but be careful I repeat don't let it get away from you.
I use a credit card for my practice that provides reqards. There are no annual fees. Through it I was able to get a shop vac for myself and a Kindle to give as a gift. I use another one of things like cell phone bills, satellite, etc. that has provided several trips to see family (such as my son's upcoming wedding in July).
As long as you do as your friend and pay it off each month, as your friend does, it shouldn't be an issue. It means you are using the card as a payment method as you would use cash or a check. What concerns me is when I see "Credit card" as a budget item. Invariably this means the client "let it get away from them," as Edward mentioned.
Do you homework and pick a card with low fees/interest. See if the rewards programs oput there will provide rewards you will actually need or use. Some can be limiting.
One potential downfall is what I have seen happen to some families. So much gets put on the card theiy lose control over their actual spending. There is a lot to be said about actually handing over cash or writing a check. This prevents getting anesthetized to the fact you are spending money you will need to pay back at some point.
If you remember credit is a tool and use it as such you shouldn't have a problem. Just don't let it become an anchor. Remember, everydollar you pay in interest is a dollar you can't use for your goals.