I talk all of the time about debt and not having credit cards. Â It seems when I make this statement, the immediate response I get back is “But why not use them to get the rewards?” Â I personally don’t understand where that makes owning a credit card a good thing – rewards or not. Â However, I wanted to give it a good shake and see if I was overlooking something, so I took a look to see what I could learn.
The first card that I checked out was Capital One Rewards — mainly because those commercials are pretty clever! Â I looked around it it seems that for most of the “Best” rewards you need to have excellent credit (but this is not defined as to what they are looking for). Â Regardless of that, they do offer cards which offer frequent flier miles or even actual cash back. Â If you do not have excellent credit, you will have to pay an annual fee of $39 for their card. Â There is no clarification as to what they define excellent credit on their site, so I can’t even tell you what they will look at. Â That honestly makes me wonder if anyone really gets the card without a fee (they probably do; I just see nothing disclosing the parameters).
The second thing I noticed is that they offer 0% APR for one full year. Â If you transfer your balance, you will pay anywhere from 12.9% – 20.9% (depending upon the card and the length of time that lapses between the time you transfer and one year). Â That rate can get pretty steep and end up costing someone a lot more than they intended.
As I looked more closely, I wanted to determine what type of reward one might receive from this card. Â The card pays 1% cash back PLUS a 50% annual bonus on your cash back. Â Let’s just say that you charge $500 a month on your card. Â You are diligent in paying the card off every single month so that you accrue no interest. Â In one year, at 1% cash back, you would earn $60 plus a bonus of $30 for a total of $90 (if you have an excellent rating you would also receive a $100 bonus). Â Out of this $90, you might have to pay the annual fee of $39 – which makes a net earned for the year $51 (or just $4.25 a month).
Now, if you happen to not pay off the card each month, you would begin accruing interest — at the rate listed above. Â Sadly, this is what more and more people do. Â They will then have used up their entire cash back to cover interest PLUS pay even more to the credit card company — all just to get a “reward.” Â They get nothing. Â All they get is deeper into debt.
I also took a look at Discover. Â They offer 5% cash back…….just on select categories. Â These can change during the year. Â Now, it was unclear on the site if they notify you if these change or not. Â If you don’t purchase within these categories, you earn nothing until you spend $3,000 annually – at which time you start to earn 1% (which 1% of $3,000 is only $30). Â Â You can also earn .25% on any warehouse purchases up to $3,000. Â One thing that is very important to note is that the purchases made at warehouses, or through the 5% categories, will NOT count towards your $3,000 purchase to earn 1% cash back. Â Are you as horribly confused as me?
So, now, onto the GOOD thing about rewards. Â If you are amongst the minimal percentage of Americans who actually pay down their credit bills every single month (carrying a zero balance and never paying interest), then I can honestly see where you might like to continue using them. Â They really could end up being a true reward for you. Â If you do pay it off and make it worth that is great.
The BAD thing is that it seems that the offers can be confusing and misleading. Â When you see Discover pays 5% cash back, you sign up thinking you will earn 5% on your purchases – when you may or may not. Â It is also so sad as many just do not pay down the balances in full each month. Â At 12, 15 or even 20% interest, this continues to push them further and further into debt. Â They feel like they are drowning (and I would know as I have been in this situation myself).
I just don’t think that a simple reward that you may or may not receive is enough reason to sign on the dotted line. Â It seems that credit cards were created to bring instant satisfaction to some. Â So many have forgotten about the “work hard and earn it philosophy”. Â We constantly have images of things that “we can’t live without” flashing in front of us online or on television. Â It makes people feel they are missing out and they need to spend. Â It drives me crazy!
Why do I nor like them? Â They cause families to live beyond their means. Â They make people think they have the money they don’t. Â The rewards taunt people in and just don’t always work as the commercials and ads claim that they do. Â Yes, I realize that this holds true to many things in life. Â I just think that earning an extra $5 a month is not enough reward for me to sign on the dotted line. Â I live by the mantra that if I can’t pay for it in cash then I just don’t need it. Â And the funny thing is, since I’ve stopped using credit cards and spending, I am happier with less. Â Go figure!!