Archives for January 2006

Cash back credit cards are all the rave now, especially the 5% ones. Citibank has had their Dividend card giving 5% cash back for groceries, gas, and drugstores for years now. Chase then copied Citi with their own version. American Express and Discover now have ones with 5% off gas. But are they really that awesome?

I was catching up on some old Carnival reading and found this post on NoCreditNeeded about how cashback credit cards are crap. Granted, from the title of the blog you wouldn’t expect to hear praise for them, but there are some good points made. Of course, I disagree with some of them as well. Let’s hit each one:

People spend more with credit cards than with cash.
Overall, this is true. When McDonald’s started to allow people to use credit cards instead of paying cash, the average sale went from $4.75 to $7. I don’t know why this is true, but it is. On average.

Would I spend less if I carried cash instead? I can’t prove it, but I can honestly say no. If 1% cash back is going to make you rationalize spending more, then (1) you are really bad at math (1% of a $300 item you don’t need is just 3 bucks), and (2) yes, please shred your credit cards. As for myself, I’ve been using credit cards so long I don’t even think about it anymore.

The ‘protection’ by credit card companies is useless.
This may be a hassle for chargebacks, I’ve actually never had to do one. But, I have gotten my wallet lost or stolen twice. Cash lost: $200+ Credit Card money lost: $0. I got my recent fraudulent charge credited back to me with no issues at all.

Credit card companies are not stupid. They are around to make money.
100% Agree. They are there to make money. My friends use this one too. My reply is two words: loss leader.

Grocery stores are also not stupid and around to make money. You see the 99 cent gallon of milk? Or the $1.50 a pound chicken? If you walked in and only bought those two things and walked out, grocery stores would go bankrupt. But no. On the way to the milk, you see that cheese you like. Oh, and you’re out of peanut butter – why not try the new organic one? They are counting on you to make it up in the end.

Banks are also not stupid and like to make money. Capital One 360 used to let you open with $1 and walk away with $26. If everyone did this they’d be broke. (So they raised the minimum to $250. I guess this weeded out the people who couldn’t save $250 in the first place?) No, they want you to get nice and comfortable, and keep all your money there at 3% interest while they’re lending it out at 6%. Clever, eh?

Does this mean you shouldn’t shop at the grocery store or use banks?

The sad truth
The sad truth is that I know that the only reason that I can get money at 0% APR and make thousands of dollars off of it, is because my neighbor is going also do the deal, spend the money, and then want a nicer car and put off paying the balance when the promo period ends. Oops, nows he’s paying 18% APR. He’s also got the new ’06 BMW 330Ci. With the nice rims. And parks it right in front of my house. Bastard.

Therefore, my advice is the same as NCN – Be honest with yourself. But instead of a blanket statement, I would add that everyone is not the same. Some people should not have credit cards. As for me, I will continue enjoy the occasional cashback checks and free $100 bonuses now and then.