Some of the numbers I work with here will be inaccurate. I want to get that said up front. We haven’t had a credit card for six years now, so I don’t recall how our old rewards card worked out exactly, but the premise I am working from is still valid. So with that disclaimer in mind, let’s get started.
Let us assume that you are like I am and want to travel. Let us also assume that you get a rewards card that gives points or miles or something similar that can be cashed in for a flight. Maybe the card is generous and gives bonus miles when signing up. So just for my argument, I am going to say that I could get 25, 000 bonus miles. That sounds awesome. Then I get a mile for every dollar I spend. To be generous, let’s say I get two miles for every dollar I spend. If I want that overseas ticket that costs about $1, 000, then I likely need to get somewhere in the neighborhood of 50-80, 000 miles. Does that sound familiar?
So if the credit card company, in their generosity, starts me with 25k miles, I need another 25-55k miles. I will work from the low end for this discussion. 25k miles, or roughly $12, 500 dollars spent will get me to the promised land of my ticket “for free.” So I spent over ten times what the ticket would have cost me to get a “free” ticket. That doesn’t sound so smart. But wait, you might be thinking, I would have spent that money anyway, so the ticket is free. You might be thinking, “Ha ha. I win!” Not quite.
When we used credit cards, as I think I have blogged about before, we spent over $3, 000 a month just on the credit card. I don’t think I could really tell you what we spent that money on. Certainly we ate out a great deal. We had very nice meals at home. We paid the card off every month, and by golly, we were getting our miles out of the deal. Once we got rid of the credit card, we found that we were spending about 40% of what we had previously been spending. Do you get that? We went from spending over $3, 000 a month to get “free mile” to spending about $1, 200 a month. With my simple math skills, that says we were spending $1, 800 less EVERY MONTH! That means that we could have bought our “free” airline ticket, with money left over, EVERY MONTH!
Now, does spending extra money, more than double every month, make sense to get a “free” ticket because you have some rewards credit card? Banks give out credit cards. Banks own most of the large buildings in any city. Ergo, banks have most of the money. They didn’t get that why by giving everyone a “free” ticket. Whether it is in annual fees, interest charges, making you spend more than you should have, or simply collecting data about you that they can sell to others, banks have never (or very rarely) been on the losing end of any transaction they perform.
There is not much I can say to persuade die hard card users that I am right. So for those that have them, enjoy using your rewards credit card. As for me and my family, we’ll enjoy having money in the bank. After all, with money in the bank, we can buy a ticket whenever we want to without having to get approval from someone else.