Have you ever had to listen to a dinner companion brag about the ‘free’ trip they took with their cash back reward cards, or watched as the person in front of you pondered which of the dozens of cards in their wallet they should use for this particular purchase?
Not fun. I don’t use cash back credit cards. I have one credit card. ONE. One credit card with no annual fee, which I use only occasionally and which is paid off every single month. I have never paid the credit card company one penny for the use of the card.
Many people swear by their wonderful cash back cards. Free money, who wouldn’t want it?
Here is why I don’t use cash back credit cards.
The hassle factor.
From researching the card that makes sense for your lifestyle, to making sure to sign up for special reward events, to tracking the ever changing categories that offer rewards; keeping up with a cash back card can be a hassle.
Years ago, I traveled once every few months on business. Each time I flew, I signed up for that airlines frequent flyer program. Soon my wallet was filled with paper and plastic cards, which I sometimes forgot to present when buying my ticket. My filing cabinet exploded with miles statements and my mailbox with junk mail due to my name being sold. When I tried to book flights with my miles, I either didn’t have enough on the right airline, or my date was a black out date. I did finally get 2 free nights at Mariott (after the programs began letting you use points for lodging), but those 2 free nights weren’t worth the hassle (although the bragging rights about them were fun).
I don’t like hassles. My life has plenty already, without adding to them with one to many credit card programs to track.
The rewards are small.
Most credit card users don’t get a lot of money back from their reward cards. A 2012 study Cash Back Credit Card Analysis – done by research company Next Adviser compared rewards by card to find the cards that provided the most cash back.
Guess what? The card giving the highest amount back the first year, WITH THE SIGN ON BONUS (which you may not earn) gave back only $426 and averaged only around $360 over two years.
Maybe that sounds like a lot to you, but I can think of other things to do with my time that will earn much more than that.
My time is valuable.
Grocery buying is what we would do most with a cash back card, but Walmart – where I shop because it is close and cheaper than many other stores – is typically excluded. Spending my time to go to another store in this case wouldn’t pay off. I would probably spend at least $10 a week more at the other store on groceries and supplies (plus the extra gas used to get there), totally negating the best of the best cash back cards mentioned above.
Spending my time to track and sign up for the rotating offers to get the best cash back rates is also counter productive. I could be using that time to obtain additional renters for our nightly rental program or writing posts for blogs like this one.
The terms can change.
No one reads the fine print, who has time – right? Many cash back cards state in that fine print that the rewards can be eliminated or changed at any time.
Rewards may disappear.
In Forbes article Are You a Sucker for Cash Back Credit Card Offers? the author details some of the drawbacks (typically listed in that fine print).
Multiple methods are used to disappear your cash back – from expirations to loss due to delinquency in your account to paying back fees used to get the rewards (some cards switch you to an annual fee if you want the bigger percent cash back rewards). If you decide to close the card or change to a new one, you might lose any accumulated rewards because you can’t meet the dollar limits to redeem.
I don’t like rewarding the credit card company.
You need to spend money to get those rewards. You may be tempted to overspend just to get the cash back. You may overextend so that you can’t possibly pay off the balance each month, and end up owing interest on the rolling balance. You may not get a sign on reward until you spend a gob of money.
Credit card companies aren’t in business to give away the farm. The rewards they wave in front of your nose earn them money.
As article How Is Cashback Profitable For Credit Card Companies? states:
“Because these programs are incentives for consumers to use their credit cards in lieu of cash or debit cards, they generate increased merchant fees for the credit card company and may also cause some consumers to increase their debt, providing yet another source of revenue for the credit card company. Rather than draining corporate profits, cash back rewards programs are ingenious marketing tools that actually increase credit card companies’ bottom lines.”
You probably do use cash back cards. How much do you actually earn?