If you read personal finance blogs chances are you’ve come across quite a few posts tempting you to take advantage of credit cards for the rewards points. You’re told how you can earn free money, gift cards, and best of all, exotic trips.
But is using credit cards really worth it?
While I don’t believe that credit cards are evil I refuse to hop on the credit card point’s bandwagon. And maybe you should, too.
The Chance of Spending More Money Increases
When you use a credit card the chance of spending more money than you normally would increases. (Need proof? Check out this article on Psychology Today, this one from Get Rich Slowly, or this one from Seeking Alpha) The reason for this is that you’re not actually spending your own money. You aren’t parting with your hard earned cash or feeling the sting of your bank account balance lower.
The sting doesn’t come until the credit card bill rolls in.
Of course your risk can be mitigated if you pay your bill immediately after using your credit card. But in my opinion, waiting for the monthly bill to roll in after attempting to game the credit card companies is like playing with fire. And you know what happens when you play with fire, right?
You get burnt.
The Rewards Don’t Outweigh the Risk
You know the people you read about who are earning all of these fabulous free trips across the world? Well, they aren’t funding these trips by using just one credit card. They’re using multiple rewards cards.
In order to receive rewards that outweigh the risk you have to sign up for several credit cards. This means you may be juggling 4 or 5 different credit cards at once which requires:
- Making sure the bills are always paid in full
- Keeping track of how much money you’ve spent
- Cancelling the credit card before you get charged an annual membership fee (usually the second year)
- Looking out for new credit cards to sign up for
And if you are unable to pay a bill in full guess what happens? You get charged interest. And your interest charges cancel out the rewards you get.
Don’t expect to open up one credit card and earn a bunch of free vacations because it doesn’t work like that. In order to earn substantial rewards you need to be a serial credit card churner.
Your Credit Score Takes a Nose Dive
If you don’t plan on taking out any credit in the next few years then this one won’t apply to you. However, if getting a home or auto loan is in your near future churning credit cards is a bad move.
When you’re constantly applying for credit and then turning back around and cancelling your cards your credit score is going to suffer.
Don’t believe me? Ask someone you know who has opened up 5-10 different credit cards in the past year what the before and after picture of their credit scores looks like.
Churning Credit Cards is A lot of Work
In order to successfully earn rewards you need to open up and use multiple cards. I’m not down for that.
Sure, you might be able to earn $100 a year by sticking to one credit card but is that really worth the risk? Not for me. Plus if you miss a payment or are unable to pay your bill in full you’re cancelling out your rewards.
If you like to travel and do an amazing job at managing your money then churning credit cards might be worth it. But for the rest of us – I think it’s a pretty bad idea.
Do you find churning credit cards is worth it?