A while back, I posted about how credit cards can be used responsibly and how personal finance commentators who say this is impossible are just incorrect (see The real truth about credit cards: why Dave Ramsey is wrong). I still believe that taking advantage of credit card cash back programs is a smart and responsible thing to do, but I was reminded recently of how easy it is to get suckered into increasing your spending to take advantage of increased cash back.
A couple days ago, I received the April-May statement for my Citibank cash back credit card, and I was quite disappointed to see that my cash back was lower than it has ever been before. I earned just $9.17; usually, I’ll earn at least $12-$13. Then I stopped to think about why this was.
I earned less cash back because I spent far less on gas during that month than I usually do - and I earn 5% cash back on my gas purchases. I spent less on gas because I’ve started riding my bike more often. Biking makes it a lot less stressful and a lot less expensive to get from point A to point B, and I’m getting more exercise than I did before. All these are significant benefits, and it would be foolish to give up these things for an extra $5 in cash back each month.
The moral of the story is that if you do use a cash back credit card, you’ve gotta be conscious of the true cost of that cash back. You should only use the card for purchases you would have made anyway - otherwise, you’re being taken in, and it’s really easy because the amount is right there staring at you on a piece of paper while the things you sacrificed to get that cash back may be harder to quantify.
I have not swayed in my belief that credit cards can be used responsibly, and that getting cash back on your purchases is smart. But getting cash back should never be your goal in making any purchase. It’s simply a side benefit - a small but significant side benefit that adds up over time, but which has to be kept in its place!
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May 24th, 2008 - 12:10 pm
I always use a credit card when shopping online. I figure that if there is a problem, at least I have some comeback. I always use a 1% cashback card, but I make sure to check my account at least 3 times a week and pay the bill as soon as it goes over 0.00.
I think a credit card is just a tool like any other. It can be used for good or nefarious purposes.
May 25th, 2008 - 5:13 pm
I always use a credit card - I get 2% cash back. I pay it off every month. That’s the rule. I wasn’t always so good about it, though. It took burning myself a few times.
Lisa
May 31st, 2008 - 3:13 pm
I thought it was interesting that you sort of contradict yourself in the very first paragraph. You are right, it is very easy to get suckered. I would think that is why Dave Ramsey, having to deal with the population as a whole, is right in what he says. Most (and I mean most)cannot use them responsibly. It is too easy, as you say to get suckered. These same people however, would be the first to say that they do use them responsibly and completely deceive themselves. (Is that me in the mirror?)
I do agree with you though, as I also do what you suggest; only purchase things you would anyway. What we do is use it to pay bills, giving, gas, and large ticket items that we have saved up for. Everything else is on a cash basis which has the wonderful ability to keep us on the straight and narrow. It is never used for general shopping.