Are credit card rebates worth it?
We use our credit card for everything. We have a rewards card that pays us 1% cash back for all purchases, so we pay everything we can with our card just to get the rewards.
However, this brings up some important issues that I would like to explore.
First, is earning rewards worth carrying a balance? You don’t really need to do much math to know that the answer is no. Any savings on rewards would be wiped out by interest payments, so you should not attempt this strategy if you will not be able to pay off your card in full each month.
In fact, we pay off our card twice a month (online), and I’ll get to the reason in a moment.
The second question, which is harder to answer is, “Will I spend more because I am using a credit card?” Many studies have shown that consumers spend more when using a credit card, because they don’t perceive it as money. According to this theory, only by paying in cash do you associate a purchase with money leaving your possession.
I see the point, but I humbly disagree. When I make a purchase with my credit card, I immediately enter into an excel spreadsheet that tracks my expenses. So, even though I used my card I am effectively treating it as cash.
Also, as I mentioned above, I pay off my balance twice a month online, so I know when I charge something the money is coming out of my account almost right away. There are two reasons I do this — one is to keep my outstanding balance low relative to my credit limit, which helps my credit score. The second is to help me mentally treat this as spending actual cash, which helps me to spend less.
So, if you are careful with your spending, and pay off your balance each month, I think using a credit card for the rebates can be a wise decision. This is especially true for recurring bills that you would be paying anyway, such as cable, phone, etc. Not only do you get the rewards, but you save money on stamps because you don’t have to mail them a check.
What about you? Do you use a credit card for the rewards? Do you have any tips or tricks to share?
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