I learned decades ago not to carry a balance on my cards. Be like me and approach retirement debt-free. However, I do leverage 2% cash back cards in my personal life and in my business, making thousands of dollars a year directly to my pocket. I understand your point, but only as it relates to people who have not gained mastery over their financial life. I don't spend any more than I would have, I just use the instrument that pays me back. Granted, I have everything on autopay.
I’m a big Chase Sapphire Reserve fan as well and pay off my balance diligently. Note that you can often pay off a bill if you missed it simply by calling and say “I missed this in the mail”. Most customer service folks can comp the interest if you really have paid off for a few months. This has happened to me three times over the years as I’m old.
As part of my being old I am on the “paper statement” plan for all my cards. Receiving the paper helps me remember to review things. Otherwise set up an evening each month to go over all your statements to know what you spend and where your investments are.
Thanks for another provocative and useful post! You are doing the work of the angels.
Just like a chainsaw or a bottle of bourbon, leverage is a powerful tool. When used carefully and judiciously, credit cards (and other forms of debt) can make your life easier and amplify positive returns. But if used indiscriminately, leverage can undermine your decision-making, or worse, wipe out your investment portfolio.
Those who understand interest earn it. Those who don't pay it.
We've been debt-free and interest-payments-free for around 15 years. We started utilizing card rewards (points) and the sign-up bonuses about two years ago. So far we've received maybe 750,000 points and used a couple-hundred thousand of them.
Considering that the most we ever got in the past for the same expenditures was around 1-2% cash-back these points are amazing.
Of course we don't carry balances or pay interest on anything ever, and we don't buy anything we wouldn't otherwise because of the presence of cards. We live in a mostly cash country so we get plenty of reminders about cash flow. But we put everything possible on credit cards.
Yes, many people shouldn't have credit cards. That doesn't make them scams any more than it makes points a scam.
You are so right that transparency doesn't change behavior. I do think it helps gradually raise awareness but like calorie counts it is easily ignored.
I wouldn't recommend automating payments. Yes you avoid fees but there is the chance that something is on there that shouldn't be. It is also another good check-in point to review what you spent and build that awareness muscle.
Everyone is different...I'm so bad at consistently logging into all my banks on time to review. I've accidentally missed a payment before so for my scatterbrain, the automation is a lifesaver for my credit score.
My community recently passed an ordinance that businesses have to accept cash. Small businesses on the whole prefer credit card-only payments to avoid stocking up on small bills, avoiding theft, and traipsing to the bank to exchange big bills for small ones again.
I’ve asked the businesses I frequent and even the stalls I buy from at the farmers market: cash is too painful to deal with, and that makes the 2% fee worth it for small business owners. Maybe it’s a regional preference? I’m in the Midwest.
Credit card APRs are annual. So a 30% APR is only 2.5% per month (less if compounded). Credit card rewards are on spend, not annualized.
So even if you roll over some balance on a heavy shopping month, it's not that big a dent. You end up paying an extra 0.5% that month? Big whoop. For a $10,000 purchase that's only a $50 upcharge the next month -- just skip a few takeouts, pay down balance to zero, and you'll be fine.
I learned decades ago not to carry a balance on my cards. Be like me and approach retirement debt-free. However, I do leverage 2% cash back cards in my personal life and in my business, making thousands of dollars a year directly to my pocket. I understand your point, but only as it relates to people who have not gained mastery over their financial life. I don't spend any more than I would have, I just use the instrument that pays me back. Granted, I have everything on autopay.
I’m a big Chase Sapphire Reserve fan as well and pay off my balance diligently. Note that you can often pay off a bill if you missed it simply by calling and say “I missed this in the mail”. Most customer service folks can comp the interest if you really have paid off for a few months. This has happened to me three times over the years as I’m old.
As part of my being old I am on the “paper statement” plan for all my cards. Receiving the paper helps me remember to review things. Otherwise set up an evening each month to go over all your statements to know what you spend and where your investments are.
Thanks for another provocative and useful post! You are doing the work of the angels.
Oh yes, I have begged Chase to forgive my sins once or twice!
Honestly, if I were a better person, I would review my statements regularly.
Just like a chainsaw or a bottle of bourbon, leverage is a powerful tool. When used carefully and judiciously, credit cards (and other forms of debt) can make your life easier and amplify positive returns. But if used indiscriminately, leverage can undermine your decision-making, or worse, wipe out your investment portfolio.
Those who understand interest earn it. Those who don't pay it.
We've been debt-free and interest-payments-free for around 15 years. We started utilizing card rewards (points) and the sign-up bonuses about two years ago. So far we've received maybe 750,000 points and used a couple-hundred thousand of them.
Considering that the most we ever got in the past for the same expenditures was around 1-2% cash-back these points are amazing.
Of course we don't carry balances or pay interest on anything ever, and we don't buy anything we wouldn't otherwise because of the presence of cards. We live in a mostly cash country so we get plenty of reminders about cash flow. But we put everything possible on credit cards.
Yes, many people shouldn't have credit cards. That doesn't make them scams any more than it makes points a scam.
You are so right that transparency doesn't change behavior. I do think it helps gradually raise awareness but like calorie counts it is easily ignored.
I wouldn't recommend automating payments. Yes you avoid fees but there is the chance that something is on there that shouldn't be. It is also another good check-in point to review what you spent and build that awareness muscle.
Everyone is different...I'm so bad at consistently logging into all my banks on time to review. I've accidentally missed a payment before so for my scatterbrain, the automation is a lifesaver for my credit score.
This is great! But I'll note that banks often charge for cash deposits, and cash presents a security risk for a business. So it's not perfect either!
True. What sort of security risk are you concerned about?
Robbery.
Oh yikes, like actual criminal activity. Always a risk with anything, I suppose!
My community recently passed an ordinance that businesses have to accept cash. Small businesses on the whole prefer credit card-only payments to avoid stocking up on small bills, avoiding theft, and traipsing to the bank to exchange big bills for small ones again.
I’ve asked the businesses I frequent and even the stalls I buy from at the farmers market: cash is too painful to deal with, and that makes the 2% fee worth it for small business owners. Maybe it’s a regional preference? I’m in the Midwest.
This piece really needs more rigor.
Credit card APRs are annual. So a 30% APR is only 2.5% per month (less if compounded). Credit card rewards are on spend, not annualized.
So even if you roll over some balance on a heavy shopping month, it's not that big a dent. You end up paying an extra 0.5% that month? Big whoop. For a $10,000 purchase that's only a $50 upcharge the next month -- just skip a few takeouts, pay down balance to zero, and you'll be fine.