The Case Against Reward Cards


I spend so much time analyzing different reward card offerings, it is easy for me to forget the other side of the coin.   In the interest of intellectual honesty and a spirited debate, I thought I might take a moment to lay out some of the arguments against reward credit cards.

Credit Cards In General Are Bad

People should pay cash for everything and never accumulate any debt.   Having a credit card will only lead you to overspend and put yourself in debt.    Life is too complicated without having to worry about your credit card at all times.   When you pay cash, you simplify your finances and guarantee a debt free lifestyle.

Reward Cards Encourage Spending

Who cares if you get a few percent back in some kind of reward if you end up spending much more money.    Getting a reward for spending encourages the wrong type of behavior.   We should be looking for ways to encourage saving and not spending.   For many people, it is just too hard to put aside the prospect of a reward and defer their spending.

Reward Cards Have Terrible Terms

Any reward card you get is likely to have high interest rates and possibly an annual fee.   When you carry a balance, even occasionally, having a higher interest rate just isn’t worth it.   Paying an annual fee is even worse, when there are so many cards out there that have none.   People should be looking for a card with the lowest interest rate and the fewest fees.

The Rewards Are Just A Scam

You spend so much time and effort accumulating points and miles, yet every year they are worth less and less.   Rewards have become, in the words of some critics, the largest unregulated lottery in the world.   With some programs, especially airlines, the rewards can be all but impossible to find.   For example, United Airlines and their infamous “Starnet Blocking”, which is now pretty much absolute on some partners.

Wealthy Reward Card Users are Subsidized By Poorer Cardholders

We have seen this argument advanced in the wake of the Credit Card Bill of Rights.   The idea is that the only way that the banks can afford to offer rewards is by sticking it to lower income borrowers.    Generally,  reward card holders are higher income customers who pay their bills in full.    Lower income borrowers tend not to have reward cards, yet they are always paying interest and fees that subsidize the rewards of the fat cats.

Do I Believe These Arguments?

Of course not.   In many ways, they are all valid arguments that should be considered strongly if you are using reward cards.   In just so happens that I feel that the counterarguments are stronger.

I have been using credit cards as my default method of payment for so long, that I no longer find it any different than paying with cash.    I pay my bills electronically, so it is very simple for me to see what I spend on my credit cards, pay my bills on time, and avoid all interest and fees.

I recognize that a lot of reward programs are scams, but I have learned to maximize my rewards by avoiding the worst programs while taking advantage of “special offers”.   Finally, I don’t believe for a second that reward card holders are being unfairly subsidized by sub prime borrowers.    If reward cards were not a profitable for the banks, they would eliminate them.   Instead, you see more reward cards with increased rewards every day.   Even if my cards were somehow subsidized by others, so what?   The banks and I enter into a lawful agreement, and I am more than happy to come out ahead if I am smart enough.

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