Tip of the Week March 11-18

Why Not Use Credit Cards for EVERYTHING?

I get asked this question quite a bit. Why not use credit cards for the cash back, reward points and airline miles? It's free money from the credit company and I pay mine off in full every month, so what's the big deal? To all those who ask these questions I will say, I used to believe that. I was very good about charging everything (including utilities) and then paying it off in full when the bill was due. I literally felt a sense of pride that I was somehow winning and swindling the credit card company out of all this 'free money'. There were a couple of major flaws with this behavior. First, I never felt like we were getting ahead because after the big credit card payment was made there wasn't any money left. Second, when there were unemployment issues, the bill couldn't be paid off in full. Thus being caught in an endless cycle. Sure we had stellar credit but we didn't have any money in the bank.

The truth is that credit card companies know exactly what they are doing by offering the various reward programs they do. These are skilled and very well researched decisions because they know that the vast majority of credit card bills are not paid off every month. They know that because you think you are getting rewarded, you will justify spending more and then not pay it off in full. Think about it, if they were losing money on these programs they would stop them immediately.

Homework: 
This week I want you to go over your credit card statements and uncover what you are really charging. Chances are the bulk of it is everyday spending like gas, groceries, eating out, entertainment and other fun things. Keep in mind what your real cost is for my tip next week. I'll talk more about how you really end up spending more by using plastic versus cash.