Ahh, the good old credit card rewards game… Sometimes it comes in the forms of credit card churning or travel hacking. Many in the FI blogosphere, as well as consumers, play the game and use credit cards to buy gas, grocery, or any kind of merchandise to get points or cash rewards. Even Mrs. Enchumbao has been using credit cards for rewards since the beginning of time, but one thing that should not get lost in the details is that she never carried a balance.
Applying for credit to get rewards is an exciting game, in which you come in with a lot of confidence because you firmly believe that you can beat the banks at their own game, but if you ever carried a credit card balance, aka debt, before you accept the agreement and apply electronically for that next credit card offer you must ask yourself this question: Am I cured?
No, no, no, we’re not talking about body diseases or STDs here. Are you cured from the past behaviors that got you into credit card trouble?
If you’re the type of individual that:
- feels the need to impose shopping bans to reduce your spending,
- feels that shopping is a recreational activity or
- leaves the stores with impulse items,
then you should probably not be signing up for credit card rewards programs. These are signs that you somehow believe that happiness still derives from shopping and materialistic positions, and you might get burned if you play the game.
Mrs. Enchumbao and I had different experiences when it came to credit cards. Unlike her, I paid interest for many years because I carried balances. The banks got to me when I was 20 years old and it wasn’t long before I started funding my fun college lifestyle with credit.
Need a shirt for the weekend? Charge it on the plastic.
Need to pay for a flight? Charge it on the plastic.
Don’t have enough cash for all the semester books? Charge it on the plastic.
Short on the house down payment? Charge the effing thing on the plastic!!!
I played that game and lost for 17 years. Finally, I realized that I was in huge trouble and understood one simple concept – that material possessions were not making me happy – I started to pay off my accounts and became debt free almost 3 years ago.
I had moments where I didn’t carry a balance before, but this time was different, as I confronted all my financial demons and got cured in the process. I had to make budgets and stick to them, but in the end, I no longer felt like wanting to buy a product just for the sake of it.
After I paid off all my credit card debt I wanted nothing to do with credit cards. I felt (and still do) that the banks are necessary organizations that are willing to do anything to make huge gains, even if you get screwed in the process. It’s a business for profit after all. During my debt cleansing process, I paid for everything with either cash or debit, and planned only with the cashflow available.
Then Mrs. Enchumbao comes into the picture, someone that never had the debt disease and had a different credit experience. She enjoyed the perks of rewards and wanted to continue using them. She suggested that we pay for things with the credit cards.
I fell for the credit card trap so many times before that I felt hesitant to fall into the loop of “you pay off the balance and then are carrying a new one before you know it”. The thought of buying on credit left a sour taste in my mouth. I had just gone through the biggest financial transformation in my life. This was a mind-changing event for me that ultimately led to this blog, so her talking about using credit cards to pay for all of our transactions sounded like inviting an alcoholic to a daily drink at a corner pub.
We compromised in the end!
I became a user, (that even has a bad connotation) an authorized user that is, but my conditions were that she would check the statements accurately for all transactions and schedule the monthly payments on the full balance due.
After the end of our first year budgeting together, I realized that I wasn’t making impulse purchases on credit, or found “needs” to fulfill, or urges to use the available credit. I finally understood that the available credit was not an extension of my money, but most importantly,
I was cured!
I was only buying things that brought value to our quality of life and most of those things aren’t bought with money. They are bought with time. Time spent with your loved ones, time spent on hobbies, time spent thinking, time spent away from a cubicle and corporate bureaucracy. That’s why we’re on this quest to buy our time back by gaining financial independence.
The compromise that wifey and I made in regards to purchase transactions worked! And it worked because with the cure came the mind power to handle credit responsibly. What an empowering Enchumbao moment!
For the first time, I experienced how credit should really be used. It’s not the stuff that I learned in school that got me to understand the topic better. I had to learn how to deal with debt and personal finance the hard way.
So my wife handled the credit card transactions and payments, and during our first year of marriage, I saw a new line of income showing on our Mint account: credit card rewards! Wow, on our first year we got cash back of $788 just for playing the game the smart way.
The healthy ever-after
Now, I’m finally paid to play the game, but I’ll never make up all the thousands of dollars I paid in interest. If I had all that money compounding for me throughout all these years, I would have been FI already. But I don’t stay in the past thinking of what could’ve been, instead move forward with valuable lessons.
I’m one of the fortunate ones that, through sacrifice, got to a debt-free stage and is financially fit to play this game. Most people will never get back any of the money that they lose to interest, and if you tend to carry a balance, the rewards game is not intended for you to win. Just like the house always wins, unless you are a professional gambler.
I play the game with my life partner, but never forget that I once carried the debt disease and that habits never die, they just get replaced with new ones. They can always come back, the word here is to play it cautiously. We are now dipping our toes into the travel hacking game, and she applied for three travel awards credits cards so far. We’ll keep you posted on how that works out.
I read reports before that you spend more when you use the plastic to buy an item instead of cash. We’re not your average consumer anymore, therefore, I don’t think that would apply to us, at least not by a significant percentage. I know that if we pay with cash we’ll, probably spend even less, but is that a route that we’re willing to take?
Since most of our expenses are optimized, going that route would probably turn us from frugal to cheap individuals. We’d probably not buy certain organic or better quality products because the goal would change from getting the most value out of our money to leaving the store with the most cash in our pocket, hence more processed food. Now, I’m not about trashing the all-cash system. I think it’s beneficial to a lot of people and can help them gain better control of their finances. It’s just not the best system for us, right now.
There’s also the time commitment that takes to track all of your expenses. It requires a good amount of time to manually enter daily transactions on a spreadsheet. Mint does it automatically for credit card and all electronic bank transactions. All it requires is a weekly check-in on our part to monitor and categorize any transactions that need attention. So, if we spend a little more because we use plastic, we certainly get it back in cash rewards, and in time saved by avoiding manual expense tracking.
So, if you decide to get into the credit cards rewards game, ensure that you have your game plan in place and have concrete answers to critical questions such as: Do I have a way to pay the balance if I lose my source(s) of income? Do I understand the underlying factors that led me to carry debt before? And never forget the real question here: AM I CURED? Because as long your source of happiness derives from shopping, you’re bound to lose the game and the rewards will not be worth it.