Question of the Week
What About the Points!?
Happy Friday, all!
I had one of my favorite conversations with this week that I’d love to share. We were talking about spending in cash versus using credit cards. I’ve written in-depth about my Three Buckets budgeting system, and an essential part of that system, at least in the beginning, is spending on debit cards rather than credit cards.
Why? Because debit cards keep you more aware of your spending in real-time and can help gauge how much money you have. On the other hand, credit cards defer the pain of paying them, which in the end causes you to spend more and maybe even incur interest.
The counterpoint I hear to this all of the time is, “what about the points? I feel like I’m leaving money on the table by not getting free points/miles/cashback etc.”
I get it. I love points too. I love feeling like I’m getting free stuff for spending that I’m already doing. It’s so enticing!
And yet, that’s the entire purpose. Earning credit points is supposed to be an incentive to spend more money. (It’s hard to imagine credit card companies make these programs out of the goodness of their heart, right?) In addition, the credit cards get now, pay later incentive is why total credit debt reached $998.4 billion in July 2021, according to data from the Federal Reserve.
Additionally, a recent MIT study found that credit cards serve to “step on the gas” by putting costs out of mind regardless of the product’s price. Specifically, the authors studied the actual brain activity for people spending on credit vs. cash. A follow-up study showed that the effect could lead us to spend 100% more.
Yes, you read that correctly – ONE HUNDRED PERCENT. So the 2%, 3%, or 5% you’re getting in rewards points isn’t saving you money, even if you pay the balance every month. If you’re not paying off the balance, you’re likely spending another 15% – 30% interest every month.
Again, I have nothing against credit cards or collecting rewards points. But if you’re in a position where you need to reign in your spending, consider making the switch to debit or cash.
Quote of the Week
“Procrastination is like a credit card: it’s a lot of fun until you get the bill.” – Christopher Parker.
Task of the Week
I’d love for you to try an experiment this weekend. Put away your credit cards and spend on your debit card or in cash. Are you more mindful of how much money you’ve spent? Are you more conscious of how much money you have? I’d love to hear about your experience. Let me know at the links below.