Why Credit Card Points Are A Scam

The Illusion of Free Stuff and Why The Credit Card Companies Always Win

Key takeaways:

• People spend more with credit than with cash or debit

• The credit card rewards system depends on your enthusiasm for the reward outpacing your discipline with spending

• While you might earn 2% back in points, you could be paying 10 times that amount in interest

• The moment you let your balance carry over to the next month and trigger an interest rate charge is the moment you stop winning the rewards game.

I remember the first time I held one in my hand. I ran my fingers along the smooth metal edge and felt the heft of it in my palm. It felt like a weapon. You could hurt someone with it. I remember the satisfying thunk it made when I dropped it onto the receipt tray. This wasn’t your dad’s credit card. This was the Chase Sapphire Reserve.

Launched in 2016 with its 100,000 Chase Rewards points sign-up bonus and promise of elite status, it was an employed millennial’s dream. But with an almost 30% interest rate, that beautiful piece of metal could just as easily stab you in the back.

The Double-Edged Sword of Chase Sapphire

It was one of the greatest marketing coups of the last decade. The card didn’t come in a flimsy envelope. It arrived in a monogrammed box, nestled in a custom-cut insert like a piece of jewelry. When it launched in 2016, demand was so intense that the factory had to ramp up production, and it ran through a year’s worth of inventory in just a few weeks.

If you had a solid credit score and could spend $4,000 in the first three months, Chase would hand you 100,000 points, worth about $1,500. With an annual fee of $450, it seemed like free money. (Today, the bonus is 60,000 points and the annual fee is $550.)

Tens of thousands of people took the bait and got hooked on plunking the card down at dinner, the sound it made on the table loudly proclaimed, “I’m smart enough to beat the system and get free stuff.” And every time we swiped our Sapphires, merchants paid a fee back to Chase. These fees range from 1 to 4% of every transaction. Visa and Mastercard typically charge 1 to 2.5%, while American Express charges more, often over 3%. This is why some small businesses decline Amex, not because they can’t accept it, but because they don’t want to run their business at a 2% discount.

If you want to actually support a small business, pay cash or use your debit card. Don’t do the performative bullshit of Small Business Saturday. You could be saving that business 3% in credit card processing fees. But remember, you’ll have to make the painful personal sacrifice of not earning credit card rewards points. Ironically, American Express CREATED Small Business Saturday in 2010, which is now officially sponsored by the SBA (a government agency). Sure, the altruism of Small Business Saturday is nice: after you’ve spent all your money on Black Friday at Walmart and Amazon, whatever pennies you have leftover should go to the struggling sundries shop on Main Street.

It’s a Trap: The Sign-Up Spend

Here’s my biggest issue with high-fee, high-interest rewards cards: most of us end up spending more money chasing the illusion of “free” stuff. I’ve done it. I bet you have too. I’ve justified $200 sunglasses because I was earning points. “You deserve this,” my brain whispers. “And think of the rewards. I know I have to hit a minimum spend to get that free round trip plane ticket to London. So why not?”

But rewards programs don’t actually reward restraint. They reward spending. And studies show, over and over again, that people spend more with credit than with cash or debit. We are literally paying hundreds of dollars a year for the privilege of spending our own money, and calling it a “perk.”

Credit card points are the financial version of a mail-in rebate. Sure, you might get that free flight or hotel night, just like you might get the $100 check if you send in the barcode, fill out the form, and mail it in on time. But the process is convoluted on purpose. And most of the time, the company still wins. The business model depends on your enthusiasm for the reward outpacing your discipline with spending.

Unless you regularly spend $4,000 or more on a card every three months, and pay off your balance in full, these cards aren't doing you any favors. All it takes is one misstep, one month where you carry a balance, and the high APR wipes out every bit of value those points were supposed to bring. While the APR the credit card charges you is completely up to them, they have to disclose it. We’ll talk about this more in a bit, but for reference, here are the details of the Chase Sapphire Reserve disclosures¹.

High Reward, Higher Risk

Let’s go back to The Savings Order of Operations: credit card debt or high-interest debt is a massive blocker to building your net worth. And yes, your credit card balance is high-interest debt.

Even the so-called “good” rewards cards often carry rates of 20% or more. That’s a guaranteed loss every month you carry a balance. So while you might earn 2% back in points, you're paying 10 times that in interest.

According to the Federal Reserve, Americans now hold over $1.21 trillion in credit card debt, up more than 7% from the year before. We're using credit cards to keep up with inflation and lifestyle expectations. And the card companies are winning.

And they have a willing army of mercenary influencers who share hacks on “traveling for free” with points. Travel hacking is bigger than ever on Reddit, TikTok, Instagram, and even on Substack. The credit card companies must watch, sit back and laugh at all of us with our spreadsheets trying to beat them at their own game. But the house almost always wins. The banks and credit card companies rake in profits, quietly making billions on interest and merchant fees.

Admittedly, I am a willing participant in this game. I LOVE credit card points. My business spends hundreds of thousands of dollars a year (on software, events, you name it, it adds up) and we put most of it on credit cards. And the perks are awesome. I do often book “free” trips with miles I’ve earned from spending. It’s amazing, but I wouldn’t be in this position without HAVING to spend the money in the first place. But remember kids, the only reason this system is really working for me is that I ALWAYS pay it off every month. These high-reward credit cards come with high interest rates. The moment you let your balance carry over to the next month and trigger an interest rate charge is the moment you stop winning the rewards game. Credit card interest rates on these rewards cards are often 30%.

A Small Win for Consumers: The Schumer Box

Before 1988, credit card companies didn’t even have to disclose interest rates clearly. That changed thanks to New York Senator Chuck Schumer, who helped pass the Disclosure Act. It forced card companies to present key terms, including interest rates, fees, and penalties, in a standardized format now known as the Schumer Box.

It was a transparency win, but not a behavioral one. Most of us still don’t read the fine print. I don’t. You probably don’t either. And that’s why so many people don’t fully understand how compound interest on credit cards works. And even this “transparent” box doesn’t actually show up the full picture. You’ll notice the APR is listed as “Prime Rate + 12.74 to Prime Rate + 21.74%.” You might be thinking, well what’s prime rate and how bad can it be? 12.64% doesn’t sound so bad. Well, today’s prime rate on May 11th, 2025 is 7.50%, so in fact, today’s interest rate would be 20.24% to 29.24%, that’s a lot of interest to pay on stuff you might not be able to afford.

How to Use Credit Cards Without Getting Burned

The truth is, you probably do need a credit card. You’ll need one to rent a car, book a hotel, or to build credit. But you don’t need to be Chase’s ideal customer.

A few rules to live by:

• If you ever carry a balance, ditch the rewards card. Look for low-interest or 0% intro rate cards instead.

• Use your credit card like a debit card. Only spend what you already have in your account.

• Set up autopay for the full statement balance. This is the simplest way to avoid interest and late fees.

• Start small. Put one predictable expense, like Spotify or your phone bill, on the card and pay it off in full each month. Build credit without inviting chaos.

• And remember: credit card rewards aren’t really rewards. They’re rebates on overspending. If you don’t need the thing in the first place, the fact that you got 2% back on it doesn’t make it a win.

Parting shot: Credit cards aren't evil. They’re tools. But if you’re using them to feel rich instead of actually becoming rich, you’ve already lost the game.

The best $20 I spent this week: A seafood platter at Entre Nous in Clinton Hill.

1. Source.