Enter your keyword

Cash-Back Credit Cards: What Do You Think?

Cash-Back Credit Cards: What Do You Think?

As you probably already know, I’m not a big fan of credit cards. I hate them, in fact. I still have one account open, though every time they send me a new card I shred it immediately. I figure that whatever convenience or credit-maintenance benefits there may be to using the credit card, it’s just not worth it to get involved with those people ever again. I don’t like the fact that they have user agreements that allow them to practice usury as long as they give me enough (fine print) notice. I don’t like the fact that I’m less conscious of money being spent when I use them. And basically, I don’t ever want to pay another dime in interest to a credit card company ever again if I can avoid it. To me, avoiding this is most easily accomplished by not using them at all in the first place. Sure, it’s a little like the abstinence “method” of birth control, but it’s got a much better track record.

There are always people, though, that inisist that using a credit card is worthwhile, both for the convenience and for the rewards they can earn through the accumulation of points. Dave Ramsey is pretty clear and straightforward on this: his theory is that these types of programs are offered simply because the credit card makes money off them. So, yeah, maybe here and there there are some people who are beating the system with frequent flyer miles, etc., but overall, they are making way more than they are spending. I happen to know that credit card companies charge their merchants more for accepting rewards cards–oh yeah! they get you coming and going–probably because people are more likely to spend if they think they’ll get something for free. Overall, it just seems like bad news to me.

A recent article in the Consumerist got me thinking about this issue. The post discusses what the best cash-back reward card is, based on one person’s experimentation. I’m sorry, but you will have to go read the article to find out the answer to this, because in my mind it is like arguing what is the interrogation technique that is most enjoyable for the terrorist, but I did want to throw this out there for you guys to comment. Do you have a cash-back card? Have you made money on it?

Comments (9)

  1. Snakey
    Mar 19, 2009

    I absolutely agree that you spend more while holding plastic than while holding cash. But I don’t blame credit cards for it: overspending is a behavioral choice made by the individual, the card just makes it easier. That’s like blaming VISA [Cadbury] for my abuse of their credit [crack-laced Easter product] line!

    I see a very simple solution to the “cashback/plastic makes me spend more” problem: put utilities and (well-considered) one-time purchases on your cash back card, and pay for anything subject to impulse-buying with cash or using a card sans bonus. And of course, always pay your balance in full each month. That should wipe out the psychological drive to overspend due to a distant bonus promise. Another mental trick is to keep the cashback bonus in mind: “I’ll save 1% on this $5 bottle of shampoo by using plastic.” Pitiful. That alone usually sends me looking to a less expensive product (with an instant “20% cashback bonus” relative to my original target).

    I happen to like Discover, I like it that the “free” money is constantly updated and ready to be used. Sometimes, I spend the cashback to support a charity: this is my way to tax my excess consumerism (and make up for my utterly lame charity donations track record). Because otherwise, I’ll be sitting there one day, impulse-driven to make a frivolous purchase (“I COULD USE THE CASHBACK BONUS! So this would be FREE!”) with nothing to stop me. And it’s not free money, in particular if it’s a measly “reward” for prior overspending. Think how much more you’d have if you had not overspent, put that money in savings/CD, etc.

    Lastly, check terms on how other cashback cards work. I considered getting another one and online reviews revealed that it was a pain in the ass to get your bonus points converted to money (i.e., calls, effort on your part).

  2. Mar 19, 2009

    I have heard that about the effort going into some cash back programs. Ultimately, I’d rather write more blog posts to increase income than stay on the phone with customer service. OTOH, I had a credit problem in the past, and I kind of look like it the same as I do with alcohol: best to stay away forever. Because what am I missing? Not much. But like you say, many people can and do use credit responsibly, so why not get cash back, I suppose?

  3. weezy
    Mar 19, 2009

    My coworker uses her cashback card for everything. However, she’s also a very good money manager, a mindful shopper, and pays in full each month. In addition, she has 3 teenage girls and would burn through so much cash during the course of the week (school project supplies, gasoline ferrying children hither and yon, gotta-get-milk stops, etc.), she’d be losing money right and left on ATM charges. For me, it’s not a good idea. I’m too likely to buy on impulse.

    BTW, I’ve added another $27 to my snowflaking toward my tax bill in the past 2 weeks.

  4. Mar 19, 2009

    That’s great, Weezy! I need to post a progress report here. I haven’t been as active in my snowflaking as I should be, though.

  5. Mar 20, 2009

    Although I had a credit problem in my 20s, I’m way over it. I actually find that I’m more responsible (most of the time) with credit cards than with paper cash, because I know a bill will come. With cash, there’s no evidence.

    We have a joint checking and joint Citibank Rewards card for most expenses, and then we each get an allowance every month for clothes and whatever-we-want (without commentary from the other–I can spend $125 on genealogy books, and he can spend $125 on running shoes, and nobody talks any smack). For our own expenses, we have a credit card in our own names (to ensure that we both have credit, individually and together). Mine is a UPromise card.

    With the joint Citibank Rewards, we cash out for gift cards (that’s the best deal, based on their program). We put EVERYTHING on that card–phone bill, cable bill, groceries, easter candy, everything. When I was working, we also had a HUGE daycare expense every month, so as a result, we were maxing out the $750/year worth of gift cards (and they had Target gift cards then). Now, without daycare, we’re not spending enough to max it out, but we’ll still probably hit $300/year or so in gift cards (since they’ve dropped Target, it’ll be Old Navy, which is where I buy most of the new clothes for my kids). We pay it off every month.

    With the UPromise, I’m up to about $600 in the two years I’ve had the card. Part of that is because I had a lot of business expenses on the card (reimbursed by the company) when I was working, so I’m not racking as much up now. The great thing about the UPromise is that it’s geared toward people who shop online; you can really rock those points if you go through the UPromise site. Since I buy freakin’ EVERYTHING online, that works for me. In fact, you get points through them even if you aren’t using that card; when I cash in those Old Navy gift cards, I go to the UPromise site, click through to the Old Navy site, and get 3% of the total for my UPromise account. They also have a lot of coupon codes (for free shipping especially).

    I don’t buy more as a result of using these cards (especially now, since I’m not working), but I do occasionally use one site over another for the UPromise points. If Zappos and Target both have glitter shoes for my kid, I’m going to buy them from the Target site (assuming I have a free shipping code or the toital cost is otherwise the same), because I get UPromise points there.

  6. Mar 20, 2009

    @Kerry, do you find you are getting a good balance growing with UPromise? I started an account up a long time ago, but I always forget to change numbers, etc. when I get a new debit card. I don’t think I have any money in there.

  7. Mar 20, 2009

    I just checked the UPromise balance, and it’s $639. I’ve been at it for almost exactly two years. This is pretty good considering it’s my secondary card–we use the Citibank Rewards card for most purchases, so the UPromise is just for my personal stuff (and work stuff for which I was reimbursed…which is no longer part of the equation, obviously). Most of that is from using the credit card and/or buying things online through the UPromise portal…not from the products at the grocery store or whatnot. In fact, I’d guess I’ve maybe made $10 tops from the spaghetti sauce or jelly or whatever that is hooked to the program. The shopping portal/credit card combo is where you really rack ’em up.

    I’m actually considering switching to using the UPromise for our joint stuff (which is 95% of our spending), instead of the Citi Rewards. Like I said, we’ve been getting about $750/year in gift cards from the Citi Rewards in the past, but it looks like they’re changing the program so that it’s considerably less rich. That might shift the balance in favor of using the UPromise as our primary card.

    I have made a hobby of rocking this whole points thing, as you can see.

  8. Mar 23, 2009

    I agree that credit cards terrible, but at Casa T-K we do use ours routinely, pay it off each month and then use those rewards. We have what is now a Chase Rewards Visa card and all our points get turned into Target gift cards that we use exclusively for budgeted purchases. In a nutshell, I get about three months worth of diapers for “free” every year and we paid nothing out of pocket for my toddler’s Holiday gifts this year. With that said, if we were ever in a money crunch, that card would get dropped like third period French, the system only works if you never, ever pay the company a cent of interest or fees.

    Great job with the financial blog, my DH and I love it and it was inspired us to be way more organized and well, lets just say not as much money is “disappearing” now!

  9. Mar 28, 2009

    I got a Costco American Express (so my Costco card is my American Express card) five years ago when we moved to Temecula because our Costco is very centrally located and they consistently have the cheapest gas prices but they don’t take cash. (They do take debit but personally I avoid debit cards because I hate to do anything affecting my checking account without having my checkbook right in front of me because I WILL forget and who needs to bounce a check?) I must say, this has been a great deal for us. I will say right off the bat that we do not have any debt other than our house mortgage and we pay off the cc balance in full each month. It’s mostly a convenience.

    Also there have been several times (maybe 1-2x/year?) where I’ve challenged charges and won the dispute and I KNOW the merchant wouldn’t have given me the money back if Am Ex wasn’t there to forcibly take it from them.

    Our card gets I think what? 5%? back? At first I had the regular one that had no annual fee (though you need to keep your Costco membership in order to qualify for the card – we have been Costco members for a long time and save money from buying things like tires — great deals on tires! — Hunter Douglas lifetime guarantee window shades for our kids’ rooms, 2-3x/mo groceries and home staples etc. Now we have the “executive” card that gives cash back on all purchases inside & outside Costco including on gas – 5% across the board on everything. We always get back 3-4x the annual fee plus it pays for our Costco membership.

    We get two rebates from them a year — one is for Costco itself and one is for the executive Am Ex. One can be redeemed only by buying things inside Costco and one can be used at Costco or converted to cash.

Post a Comment

Your email address will not be published.