I Quit – Credit Cards, Rewards and All

atm-for-cashI’m just sick of credit cards. Simple as that. No, I’m not carrying balances or paying finance charges (I haven’t for years). I don’t like tracking my spending and balances with credit cards, I don’t feel very “rewarded,” and I often feel I spend more (see my “cash over credit” post). Maybe that’s all crazy or lazy or untrue, but it doesn’t feel right, so I’m just going to quit. Here’s why I’m making the switch.

Disappointing Rewards

My Capital One “No Hassle Rewards” card gives me a free $150 flight if I earn 15,000 miles. But to get to 15,000 miles, I need to spend $12,000. That takes me a year or more (thankfully) to earn a meager 1.25% cash back. Once I earn that many points, I can get the free flight, but only up to $150. If the flight costs more than that, which most flights do, I can’t use my miles.

What about cashing in points for gift cards or other rewards? If I want a $25 Home Depot gift card from the rewards store for 5,000 miles instead, and I’ll have earned myself a 0.625% return. Worthless.

Don’t get me started on how long it takes me to cash out $50 in rewards from Discover via 1% cash back. Sigh.

I’ve also opened new credit cards accounts for “travel hacking” purposes. Sure, I earned 100,000 British Airways points after spending $2,500 within the 3 month time limit, but now I just accumulate points at a much lower level. But here’s a scary thought: the more I spent on my card, the more sense of accomplishment and satisfaction I felt as I neared my reward. It doesn’t make much sense to me to spend money to make money like this. I haven’t redeemed any miles yet, so I haven’t gotten any enjoyment from my rewards yet, either.

When it comes to credit card rewards, I think Baker’s credit card rewards post says it best:

“Don’t try to beat someone at their own game. It’s not impossible to beat people who’ve spent their whole lives studying a specific game, but it’s rare to have consistent long-term success.”

These credit card companies are HUGELY profitable for a long time, and they wouldn’t be that way if many customers weren’t paying billions in interest, fees, and other charges.

Security is No Matter

Debit cards aren’t any less secure than a credit cards. According to Dave Ramsey:

“If you hold a debit card from a well-known name like Visa or MasterCard, it will have the same policy about unauthorized charges that credit cards have.”

This means there’s no security advantage to credit cards (as long as you don’t use your pin to complete the transaction). I’ve had 3 or 4 cases of fraud with my credit cards, but haven’t had any problems with debit. Until I do, I feel plenty safe.

I Like Using Cash – Even While Traveling

Personally, I don’t think skipping credit cards will make travel much more difficult. I tend to choose cash over credit when I’m abroad, and you won’t have a choice in a lot of places anyway. USAA charges a 1% fee on foreign withdrawals, which is hardly worth thinking about. Besides, many credit cards charge foreign transaction fees, such as my Chase card that cost 3% to use.

Using cash hits my pain points. I feel more emotional when I pull cash out of my wallet, and I notice when I’m going to the ATM more and more often. I find spending cash frustrating and stressful, which is a good thing because I end up spending less.

I Want To Concentrate On My “Savings to Quit” Goal

Right now, I use multiple credit cards because I have recurring payments, like Netflix, on auto-pay. During the month, I usually run a balance on multiple cards, making it frustrating to keep track of balances on the cards and figuring out how much I’ll have to transfer from my checking account to pay those balances.

Instead, I’m going back to basics so I can concentrate on my $10k savings goal and not managing credit cards. I’m simply going to have my one USAA account and one USAA debit card, and I’m really excited for how much easier this is going to be. I’m sticking with USAA for now, even though they just canceled their debit rewards program. I’ve been pondering a switch to PerkStreet after meeting some people from there at the Financial Bloggers Conference, so I’ll keep you posted if I do make the switch.

How long will this last? I’m not sure yet. It’s indefinite for now. I’ll still carry a credit card for emergencies, but I won’t be pulling it out for regular purchases.

I know there are a lot of “fixes” that could work my issues with credit, but I’m just not interested in trying to fix this right now. I could sign up for Mint again, use just one card, or try other remedies, but I really just want to go without for awhile.

Side note: I’m thinking about making this a regular series of things that I can “quit” that are standing in the way of my goals until I leave my job. It sounds like a fun little side-series, so stay tuned for the next installment.

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photo by: Gedankenspiele

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Comments

  1. The game can be profitable if played correctly!  Here’s how I look at it:

    If you keep a balance, rewards cards are a very bad deal.  Use a vanilla card and you are better off (vanilla cards have a lower rate of interest than rewards cards)

    If the card has an annual fee, stay away.  (Sure some might be profitable, but as a general rule I stay away)

    Look at where you spend the most and if a card is offering a cash back on it, why not use it?  Remember, retailers factor this into their price.  I want my share back!

    Don’t complicate your life by signing up for too many cards.  Pay off balances in full, enjoy the free float and other perks like extended warranty and price protection!  
    -MC

    • MC,

      I think your advice here is very good and concise and would work very well for those that want to use credit cards. I’m glad you pointed out that “retailers factor this into their price.” Very true, and very unfortunate for those that pay with cash.

      Good points about extended warranties and price protections. I’ve never utilized these before, but they can work.

      I know I’ve said this before, but I’m convinced that I spend more when
      using credit cards. I don’t have proof for myself, but there are studies
      to back this up (see my Cash over Credit post). I’m not saying it’s
      that way for everyone, but it is for me. As long as this is true, going
      for rewards won’t be beneficial for me because I think I’ll spend at
      least the 5% more that I would get as cash back anyway. Maybe it comes
      down to “self control,” but I think there’s more complicated psychology
      behind it.

  2. I don’t look at the rewards as a goal to reach.  Rather, I view them as an extra bonus for my normal spending, which cash doesn’t pay for.  And, by using he credit card shopping portals I can earn up to 10x the points which makes the accumulation much easier.  The tracking for me is really simple since everything gets downloaded into Quicken, and using naming rules it all gets coded properly (I only use 2 cards so that helps simplify tings as well)  Plus, I just don’t like or listen to a thing that Ramsey says.

    • I probably should have been more clear, but to get some of the larger rewards (like 100,000 miles) you have to spend the money in a certain time limit ($2,500 in 3 months, in this case).

      That makes sense for Quicken and other tools, I just don’t prefer to use those myself.

      Dave Ramsey’s advice may not be for everyone, but you’ve gotta admit that he’s hugely successful in helping others get out of debt (mostly from credit cards, nonetheless).

      • I get it.  Can’t really remember the last time I even shopped for a new card, but yeah, spending that much in such a short time would definitely  take some stretching.

        My problem with Ramsey is the same I have with Dr. Phil–they seem so arrogant and think they have all the answers.  But that’s a rant for another time!

        Bottom line is you gotta do what right for you.

  3. I get cash back on my card and I like it.  However, all we did was switch from using our debit card for everyday purchases to using one particular credit card that earns cash back.  We still live on the same budget, no changes in our spending at all.  It’s just free money and I really only think about it once per year when the check arrives. 

  4. Great, me too. Although, I prefer to mainly use credit cards when travelling. It saves the bother of exchanging currency. Let us know how it works for you.

    • I usually just withdraw local currency at an ATM in the country I’m in. Haven’t had any problems with it so far, and the exchange rate is better than currency exchange booths.

  5. Gharkness says:

    Dave Ramsey is a good guy, but when it comes to the difference between debit cards and credit cards, he’s all wet, and here’s the difference. 

    Credit card:  “Hello, this is customer service. How may I help you?”
    “I see a fraudulent charge on my credit card.  Take it off because I am not going to pay it.”
    “Yes ma’am, we’ll take that off right away; so now let me cancel your card and send you a new one.”

    Debit card:  “Hello, this is customer service. How may I help you?”

    “Oh, no, someone stole all the money out of my bank account!  May I please, please, please, please, pretty please with sugar on it, have my money back?”
    “Hahahhahahahhaahahahah! Tough luck, lady!”

    Nope, when it counts, I’ll stick with the credit card.

  6. Indeed, I prefer using debit, although Bank of America will start charging me a monthly fee for that privilege.  The charge for that is more than the interest charge on my credit card so maybe I’ll consider changing that idea.

    Now I can see why banks would do that.  They want us on credit cards.  It’s where they make their money.

    Ha

    Bryce

    • Ha, you’re probably right. I know the new laws regulate what fees banks can charge, so this has an impact, too. That’s why I stick to customer-friendly banks and avoid the big banks.

  7. Interesting. I have been using a Venture One card from Capital One for exactly one year now and I’ve earned over $1,000 in travel cash from it. I only use it for monthly expenses: groceries, rent, gasoline, cable, internet, etc, and I pay it off in full each month so I pay no interest on it. 

    My reasoning is this: I am going to be paying these bills anyway. If I put them on the Capital One card then pay them off during the same billing cycle, I pay no interest fees and I get free money from Capital One. 

    So far, in the past year, I’ve only paid a $49 card fee once (it was free the first year). So I’ve netted $950 free travelin’ dollahs. 

    Now, there are other benefits. Chris Guillebeau talks a lot about ‘travel hacking’ and Steve Kamb at Nerd Fitness has posted up on his blog about how he’s used Chris’ techniques with success. 

    If you spend smart, I’m confident these cards are a benefit. If you buy silly things you don’t need just to get the points, well, then you’re playing right into the game the credit card companies designed for ya! 

    There is a technique that I have not used, called points recycling. Basically, it works like this:
    – Go to WalMart. Buy a gift card (say $500 worth) with your rewards card
    – Buy $500 money order from WalMart with $500 gift card
    – Deposit $500 money order into bank account
    – Pay off rewards card balance
    – Repeat until you’ve got lots of ‘free’ points, or the police chasing you down

    I wouldn’t recommend this technique, personally, since it’s obviously questionable on an ethical level. But it’s out there. And people do use it.

    Either way, interesting post. I am not a fan of debt (which is why I don’t have any) because I’ve been down that dirty road before and it has got nothin’ but bad news on it!

    • Great comments, Tim! That’s great that you’ve gotten so much from rewards. I think it’s definitely worth it if you can keep yourself in check.

      I’ve heard similar things to the “points recycling” method. It doesn’t seem like too much of an ethical dilemma (credit card companies would still collect fees associated with the gift card purchase). I’d keep that in mind for the future.

  8. I highly recommend using the Perkstreet account. I switched to using them a couple of months back, and I’m already earning more in cash back rewards  (2%)  than I am in interest on our emergency fund of $30,000+.    I just cashed out the cash back rewards of $100 after only a couple of months – all for spending we would have done anyway.  Plus there are no credit card payments to keep track of.  

    • That’s actually a really great idea, Peter, and one that didn’t occur to me! When I first looked, I was thinking that I didn’t want to just throw $5,000 into an account so I can earn 2% on debit purchases. But that’s a great idea to move your emergency fund there! I think I’ll do the same with some of my savings since I’m not earning much elsewhere, either.

      • I actually left our emergency savings alone, but moved $5000 from our checking over to Perkstreet after the first 3 months (which you get 2% cash back without minimum balance).   With the interest rate environment like it is currently, you’re not making much from the savings accounts anyway. 🙂

        • Thanks for the clarification. That’s pretty awesome you can get the 2% for the first 3 months without the minimum balance. In that case, this is an even easier decision!

  9. I agree that having too many credit cards can become overwhelming to deal with.  I recommend sticking with a simple yet effective money management system.  Managing your money shouldn’t be complicated.

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