If you know me then you know that I despise debt. I hate it. I loathe it and it sends me into violent frustration just thinking about personal debt.
At the same time I love travel rewards credit cards.
I know, it’s kind of oxy-moronic right?
Well, not entirely. See, I love using the rewards programs attached to credit cards to take advantage of great perks, like free flight and rooms, and I got over $200 in apple store gift cards with one by Barclay Card.
But with that being said, I also don’t like when things are complex, and having hundreds of small transactions on my credit card each month not syncing real time with my budgeting app Youneedabudget really is just a waste of my time. So I gave it up. I gave up spending “normally” on my credit cards in favor of something easier and more efficient.
And trust me you do not want to have to go back through and balance out each and every transaction by hand at the end of the month and reconcile your personal credit card.
So here are 3 reasons I gave up my personal credit card in favor of a simple bank debit card.
Reason Number 1: Debit Cards Spend Like Cash
Debit cards reflect the actual money in your account and this means real time transaction tracking, so there is no hassle of trying to keep track of it in your budget.
For variable expenses like eating out and clothing, anything that’s non-necessity, I put them on my debit card so that I can see them real time.
For expenses that I’m going to incur every month such as groceries (which is right about at $100 a week for me and my girlfriend), cell phone, electric bill, car insurance and anything else that I know is a fixed cost coming out each month I put it on my Credit Card and then pay it off at the end of the month.
Now, YNAB does track credit cards for you, each time when you spend money you just need to record the expense in the app under the appropriate category; however, if you’re not checking up on it constantly you can lose site of “lose” expenses (anything that is variable and unpredictable).
So instead, I prefer to put the small daily expenses on my debit card and the large stuff on differed or 0% financing cards.
Need a new computer? Don’t over buy, but why pay cash for it straight out of your debt when if you have the money saved you could pay it on your rewards card, pay it off the next day, and then get the points?
Need a new phone and been savings? Put it on your card then pay it off the next week.
Want to go out to eat? spend it on your debit card with funds you already have. You will spend more if you don’t, it’s simple psychology.
And if you seriously think that putting your Starbucks $4 coffee on the card each week is going to amount to anything in a year, it isn’t, trust me I tried this and I managed to get back $0.50 for spending almost $500 in a year on coffee.
Save for big purchases, pay them with a card, then pay the card off immediately.
Reason Number 2: Just Like Who’s Line Is it Anyway, The Points Don’t Matter
Going back to the coffee point, the points you gain from personal transactions really are negligible.
Yes if you put every single expense on your card and then pay off your card each month then you could rack up a few thousand points at the end of the year, but only if you limit your spending, because any points you gain by “spending to save” will be negated by the excess spending you did to achieve more points.
Most points programs are designed to get you to spend as much as 40% more on a reward of 0.017 x. Meaning if you spend a $1000 more you get back $17
That’s a low rate of return.
If you are spending $750 a year in Cellphone service why not put it on your card and then each month simply pay it off? That would equate to $12.5 a year in money earned by paying you bill. Add that to your insurance for renters and or car, most pay around $200 a month = $2,400. Meaning you will get another $40.8 for paying your insurances.
Any card with bonus rewards for spending big in the first 3 months will stack those points x10 for you. So consider carefully how you spend your money on your cards.
One final thing.
I looked through my bank ledger last year and eating lunch on campus cost me $546 and I gain about 546 points from that.
546 points x 0.017 = $9.28
So you aren’t really making any gains here with your flight plans when you spend more (which is what credit cards are designed to make you do) daily.
$200 goes a lot farther than 200 points.
Trust me, I know, I got over 60k points through travel rewards which helped me fly to 2 different countries last year.
So In Summary…
- Don’t look at your credit card like its cash, look at it like what it is, a loan that you will have to pay back eventually.
- Save for big purchases and then pay off the card in full the day that you make the purchase to avoid carrying a balance.
- Put your day to day expenses on your debit card for ease of tracking.
- Put any reoccurring expenses that you can pay by card on your rewards card and pay them off at the end of each month.
When you do this, the card companies sure don’t like it, but your wallet will.