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“Be careful”! I say that phrase countless times in my daily life to my adventurous four-year-old. You’re climbing up the rickety fort, “be careful”! You’re riding your bike down the sloped driveway, “be careful”! You are getting thrown in the air by daddy inches from the swirling fan, “be careful”! I try not to over-use “be careful”, but four-year-old life is just kind of always one or two steps away from disaster. The truth is that the “be careful” mantra also applies to the rewards credit cards I talk about here.
There’s absolutely no denying that big travel rewards come quickest and easiest from rewards credit cards. The sign-up bonuses are like massive shots in the arm of our hotel and airline award accounts, and the rewards just start there. I use a variety of rewards credit cards in my daily life to maximize virtually every dollar that my family spends. If you would have told me 20 years ago we would be charging a cup of coffee, even my then junior high aged brain would have said that’s a pretty bad idea. If you can’t afford that cup of coffee with cash, do without.
However, my use of credit cards has evolved far beyond using credit for things I can’t afford right away with cash. Instead, I charge virtually everything, and then pay the bill off at the end of the month. The goal is to not buy anything with a credit card you wouldn’t otherwise buy with cash, and of course then pay the bill off monthly to avoid interest charges that will very quickly eat away at the value of the rewards you earned by using your card. If you do all that correctly, then you then get lots miles and points for simply paying for things you had to pay for anyway.
That all sounds perfect, and it pretty much can be. But, we are all humans, and inherently all imperfect. This “perfect” plan has the potential to become imperfect and expensive, so I thought it was time to devote a post to a few warnings around this method of personal finance and reward earnings.
Go Slowly, This Isn’t a Race:
When you first discover the world of rewards credit cards, the inclination for some is to go from bank to bank “trick of treating” to see how many rewards cards they can open up into their bucket at once. The rewards are great, but unlike with Halloween, this isn’t a “one night only” opportunity. This is something you can be in for the long haul, so start slowly and don’t feel the need to open up tons of accounts all at once.
That can result in the banks viewing you as a credit risk, and if you aren’t organized it can result in missing payments or minimum spending deadlines if you don’t have a very good system in place. Start with one or two, develop a tracking system, and go from there.
I mentioned this already, but if you are going to dramatically change the way your family handles their finances, then you need to get organized early on. I recommend setting the due dates for your cards on the same date. You can call the banks and ask for this, and usually your request will be granted. If you have tons of different cards, all with different due dates, that is the recipe for an accidental late payment. You can also auto-schedule at least minimum payments for cards if you are afraid you might be traveling and forget to take care of making the various payments.
You also need a system to track minimum spending requirements, renewal dates, etc. Use excel, draw a system on paper, use an online tool, just do something to get organized early on so you don’t have a mess to untangle down the line.
Be Honest About Your Spending:
The previous warnings are the easy ones to manage in my mind. This is the harder one. Myself and others often say something along the lines of “don’t spend more than you otherwise would” on your cards, but I know that is easier said than done for some people. There is no perfect way to solve for this other than self-examination and honesty, but I highly recommend that think about whether you have the restraint to not spend more on a credit card than you would with cash. If you don’t think you can manage that, then stay away from the world of rewards credit cards. You will be better served looking for travel deals you can pay for with cash than trying to earn rewards by spending on credit.
If you are already into the world of rewards credit cards and find yourself spending more each month on purchases than you did on cash and debit cards, then take a hard look at whether that is worth it. Perhaps you can adjust your spending patterns back into alignment, but if you can’t, then this isn’t the best method for you. If you are using credit cards primarily for the rewards, but find yourself then paying interest or spending more than you otherwise would with cash, then you are on the losing end of the equation.
In my 3.5 years of writing about this type of stuff, I only personally know one person who has gotten a rewards credit card primarily for the travel rewards, and then maxed it out on unneeded items. I know hundreds, even thousands, who have used rewards cards successfully to maximize the purchases they were going to make anyway. However, even though I only personally know of one person who got a rewards card and then came up on the losing end of the financial equation, the risk is there for that to happen for others if you aren’t careful and honest with yourself.
This post isn’t meant to scare anyone away from using credit cards responsibly to earn massive rewards, as it can be done very safely and effectively. But, no one method is perfect for everyone, so as a mom I have to throw out a few “be carefuls” every once in a while.