Is getting a rewards credit card worth the effort?

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jlq39
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Is getting a rewards credit card worth the effort?

Post by jlq39 » Mon Mar 15, 2010 12:12 pm

I have been reading some threads about rewards credit cards, and I see how some take advantage of them. I currently only have one credit card, and that is with my credit union. It has no rewards, and I keep no balance on it. When I got it many years ago when I was young and trying to build my credit history, I only requested a $1,000 credit limit, and have never had that raised. I only use it for online transactions where I don't want to use my debit card. I have to admit, identity theft has me somewhat worried in regards to my debit (Visa) card and having direct access to my checking account.

Lately, I've been wondering whether it is worth getting a better card with some rewards on it, for example, the PenFed Rewards Card. Part of me doesn't like the idea of getting another credit card, because I'm pretty debt averse, but on the other hand, I would not carry a balance. A 5% savings on gas, and savings on groceries and other purchases does appeal to me being the penny pincher I am. But is it really worth the hassle of another account and the ability to have something go wrong and end up getting charged with some kind of fee that negates months worth of rewards. Any thoughts?

UPDATE: I should add that, our expenses are pretty low, so we would probably charge no more than $500-$1,000/month. Plus potentially any large purchases that we could run through the card.

MidwestEng
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Post by MidwestEng » Mon Mar 15, 2010 12:46 pm

If a person is willing to pay the card off every month and not pay late, then I think a rewards card is worth it.

Let's take the middle range of your monthly expenses, $750, and a card that gives 2% back on all purchases.

750 x 12 x .02 = $180 back a year, not including any unexpected expenses.

I think using a card for a year is worth ~1/4 of a months total expenses.

Chris

chaz
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Post by chaz » Mon Mar 15, 2010 1:15 pm

Try Chase Freedom.
Chaz | | “Money is better than poverty, if only for financial reasons." Woody Allen | | http://www.bogleheads.org/wiki/index.php/Main_Page

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nisiprius
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Post by nisiprius » Mon Mar 15, 2010 1:28 pm

It wasn't worthwhile for us. We got a Discover Open Road card because it gave 5% back on the first $100 worth of car-related purchases per month, so we figured it was an easy $60 a year. Our gasoline spending was in fact a good match for $100/month.

At first it worked fine. In four months we'd accumulated $20 cash back, and that point we could credit it against our bill. I think maybe that only worked once.

Then they made a new rule: you had to accumulate $50, not just $20, in order to get cash back from your cash back card. So when you got to $20 website would tantalize you with some shimmering animated naggy thingy telling us that we were "ready to redeem your cash back reward" but if you wanted, you know, cash back, it would slap you on the wrist and suggest shopping at one of their fine online shopping partners instead.

Then they cut the reward to 2%. The upped the amount on which they paid the 2% to $250 so if you had a gas guzzler you could still accumulate $5 a month, but in our case it meant we'd be making about $2 a month and not be able to redeem for a year. Oh, I forgot: they made the reward no longer apply to car rentals and car-related purchases, just gasoline.

What tore it completely was that about the same time several gas stations in town instituted discounts of about eight cents a gallon for cash, making it cheaper to pay with cash than with the Discover card, even considering cashback.

At that point we canceled the card. We felt seduced and abandoned. The card might have saved us a grand total of $75 start to finish.

From other complaints on this forum I get the distinct impression that these cashback deals are promotional teasers more often than not, and you can't make money on them unless you're willing to constantly keep going after fresh new deals.

It wasn't "too good to be true"--it just wasn't very good.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

ttcbj
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yes

Post by ttcbj » Mon Mar 15, 2010 1:47 pm

I have found it worthwhile. I spend somewhat more than you do, but its an easy way to get 1-2% of your spending back regardless of how much you spend.

For the first year I had the Chase Freedom card, which at the time paid something over 1.5% (the rules were complicated). Then, they rolled it back to 1% and I switched to the Schwab Invest First Card, which pays 2% monthly.

I agree that you need to be willing to tolerate some deterioration in the deals over time, and to occasionally switch cards, but overall I have found the cards do what they promise and are worth it.

ttcbj
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yes

Post by ttcbj » Mon Mar 15, 2010 1:47 pm

I have found it worthwhile. I spend somewhat more than you do, but its an easy way to get 1-2% of your spending back regardless of how much you spend.

For the first year I had the Chase Freedom card, which at the time paid something over 1.5% (the rules were complicated). Then, they rolled it back to 1% and I switched to the Schwab Invest First Card, which pays 2% monthly.

I agree that you need to be willing to tolerate some deterioration in the deals over time, and to occasionally switch cards, but overall I have found the cards do what they promise and are worth it.

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Post by Ron » Mon Mar 15, 2010 2:08 pm

My wife/me travel quite extensively during the year and average $15-25k travel expenses on our Fidelity AMEX (2% back), in addition to charging every conceivable debt to it, including our satellite TV, car insurance, telephone/internet, cell phones, etc.

We "make" more than several hundred $$ per year, doing nothing special, IMHO.

Is it worth it? Yes.

BTW, we do have the Fidelity Visa card for those places that Amex is not accepted. The Visa card has less of a return (1.5%, under a specific charge limit - 2% over the limit) but it is still worth a few $$ during the year.

Last year, we "earned" over $600 in eaned rebates. Why would you not take advantage of it - especially if the card cost you nothing?

Of course the disclaimer is that you must pay it off every month (as we do) to make sense. I guess we're one of the folks the credit card companies hate to see (but that's OK - we'll live with the stigma).

- Ron
Last edited by Ron on Mon Mar 15, 2010 2:20 pm, edited 1 time in total.

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Post by northend » Mon Mar 15, 2010 2:17 pm

It's been worth about 500 bucks to me last year. So for me, I would say yes!

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Post by JordanIB » Mon Mar 15, 2010 2:18 pm

I don't see how it wouldn't be worth it. It's free money.

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Post by ensign_lee » Mon Mar 15, 2010 2:20 pm

Choosing the right rewards card and being willing to switch when it stops working makes the process a lot easier.

Most common complaints are:
A) Having to reach a "tier" in order to cash in rewards makes the rewards less useful (ex. having to have $50 in accrued rewards in order to get your reward. Or worse yet, only being able to cash out in $50 increments)
B) Rotating categories makes figuring out which card to use a gigantic headache. (ex. discover more's rotating categories. You have to remember to apply ever 3 months for the category you want, and then you have to remember to only use that card for that category if you want to maximize its rewards)
C) You have to request your reward in order to receive it. In the meanwhile, the credit card company can change its reward redemption system, close your account and 0 out your rewards balance, anything really. (ex. When Chase decided to change my card from my Chase Freedom to some new crappy card, I lost my ability to cash in $200 worth of rewards points to $250. booooh)
D) Rewards CAPS. (ex. You can only get cashback on Discover for up to $200 in purchases or $20 in rewards or something stupid like that).

I'm using the Schwab 2% cashback card for pretty much everything. It's very, very simple. 2% of my purchases back at the end of every billing cycle, deposited into my Schwab brokerage account automatically (big plus). From there, I can just move it to my checking account. Voila! Instant cashback.

If you're looking for maximum return with minimal effort, I'd strongly recommend that card. It's the easiest to understand: no rotating categories, money is automatically credited to you, and there are no caps on rewards.

I can't post the link to the application because I'm a new member apparently, but a quick google search should reveal the link to you.

Is having a rewards CC worth it if you pay off your balance each month? YES.

I've accumulated at least $750 in rewards over the past year and half or so. That's $750 I wouldn't have had otherwise.

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Post by nisiprius » Mon Mar 15, 2010 2:25 pm

JordanIB wrote:I don't see how it wouldn't be worth it. It's free money.
Image
Your attention is not free. Your brain is not free. Your emotions are not free. They are valuable things, not to be traded except for good value in return.

All of your possessions are tiny, weak little hooks that tug on you, gently, gently, so gently--and collectively restrict your freedom--like the Lilliputians tying down Gulliver.

If you believe for an instant that owning one more credit card does not affect your financial behavior at all, then you are deceiving yourself and that, too, is not cost free.

A credit card that pays cash back makes me feel good about that credit card, about the company that issued it, and about buying things with that credit card. Instead of feeling lousy when I paid for gas, my Discover card made me feel... well... rewarded.

The first time I paid cash for gas instead of using my Discover card I felt bad because I wasn't using my Discover card. I knew I was saving more money--but I felt bad. I started to say to myself, "well, gee, my Discover card was helping me track my purchases. And it was a really cool-looking card. And maybe I should have an extra card in case I'm traveling and my other two cards are both declined because of some network glitch, and..."

How much does it cost me to think very, very slightly irrational thoughts? Thoughts that are pulled, oh so gently, in a direction chosen by Discover?

I'm not saying it's a bad thing. I'm not even saying it might not be worth it. I'm saying it's not cost free... and if you think it's cost free and don't know the cost, you can't decide whether it's worth it.
Last edited by nisiprius on Mon Mar 15, 2010 2:35 pm, edited 1 time in total.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

jegallup
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Post by jegallup » Mon Mar 15, 2010 2:34 pm

The one that's been worth it to me is an airline affinity card. If you travel on business and have to front your own travel expenses and then get reimbursed, it's well worth the annual fee. Here's the secret: you don't use the miles for "free" (yeah, right) tickets, you use them to upgrade coach tickets.

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Post by trigger08 » Mon Mar 15, 2010 2:37 pm

Like Schwab, Fidelity has a 2%-reward-on-everything card that's a good general use card if you have a brokerage or other account with them. (Although mine is an AMEX which at times means I have to fall back to a different card.)

The PenFed rewards visa is good for gas (5%) and groceries (2%), and although they just dropped the basic reward level to 1%, you get the reward cash each month, as a credit on your statement, so no waiting for insane limits.

Otherwise, it is a bit of a hassle to keep up with the rotating categories at Discover (and now Chase).

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Post by fsrph » Mon Mar 15, 2010 2:43 pm

JordanIB wrote:I don't see how it wouldn't be worth it. It's free money.
It isn't worth it if the CC company changes the reward terms after you've used the card for 6 months to a year. Then you end up having a CC that is no longer the "reward" card that you signed on for. That happened to me with a few large banks. I now use the PenFed CC almost exclusively. No problems with it. I pay my CC off every month and use it for convienence sake. I think if the OP choses a rewards card that has a good chance of maintaining the reward percentages over time, then go for it. Why not?

Francis

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Post by ensign_lee » Mon Mar 15, 2010 2:44 pm

trigger08 wrote:Like Schwab, Fidelity has a 2%-reward-on-everything card that's a good general use card if you have a brokerage or other account with them. (Although mine is an AMEX which at times means I have to fall back to a different card.)

The PenFed rewards visa is good for gas (5%) and groceries (2%), and although they just dropped the basic reward level to 1%, you get the reward cash each month, as a credit on your statement, so no waiting for insane limits.

Otherwise, it is a bit of a hassle to keep up with the rotating categories at Discover (and now Chase).
Fidelity's version makes puts the contributions into an IRA. Which is a problem if you're already contributing the max to your IRA.

Big difference.

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Post by mptfan » Mon Mar 15, 2010 2:52 pm

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Ron
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Post by Ron » Mon Mar 15, 2010 2:53 pm

ensign_lee wrote:Fidelity's version makes puts the contributions into an IRA. Which is a problem if you're already contributing the max to your IRA.

Big difference.
Uh no. Mine is contributed directly to my taxable MM account :wink: ... While Fidelity advertises the IRA option, there are other ways to get your reward.

I'm "older than dirt", retired, and no longer contribute to any retirement account...

- Ron
Last edited by Ron on Mon Mar 15, 2010 3:06 pm, edited 3 times in total.

taichifan
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Post by taichifan » Mon Mar 15, 2010 2:56 pm

We have and use three rewards cards, charge virtually everything we purchase, and pay them off in total each month. In the last two months, we've received a rewards check from Chase Freedom ($600) and had credited to our Discover several hundred dollars. This month all groceries go on Discover (5% cash back up to some limit which I forget), and specific other purchases go on Chase Freedom. If you can and will pay off cards each month, and take the time to read about (and sometimes register online for ) the deals offered each month (fifteen minutes max), I think rewards cards are valuable.

JordanIB
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Post by JordanIB » Mon Mar 15, 2010 3:06 pm

nisiprius wrote:
JordanIB wrote:I don't see how it wouldn't be worth it. It's free money.
Image
Your attention is not free. Your brain is not free. Your emotions are not free. They are valuable things, not to be traded except for good value in return.

All of your possessions are tiny, weak little hooks that tug on you, gently, gently, so gently--and collectively restrict your freedom--like the Lilliputians tying down Gulliver.

If you believe for an instant that owning one more credit card does not affect your financial behavior at all, then you are deceiving yourself and that, too, is not cost free.

A credit card that pays cash back makes me feel good about that credit card, about the company that issued it, and about buying things with that credit card. Instead of feeling lousy when I paid for gas, my Discover card made me feel... well... rewarded.

The first time I paid cash for gas instead of using my Discover card I felt bad because I wasn't using my Discover card. I knew I was saving more money--but I felt bad. I started to say to myself, "well, gee, my Discover card was helping me track my purchases. And it was a really cool-looking card. And maybe I should have an extra card in case I'm traveling and my other two cards are both declined because of some network glitch, and..."

How much does it cost me to think very, very slightly irrational thoughts? Thoughts that are pulled, oh so gently, in a direction chosen by Discover?

I'm not saying it's a bad thing. I'm not even saying it might not be worth it. I'm saying it's not cost free... and if you think it's cost free and don't know the cost, you can't decide whether it's worth it.
That's a beautifully convoluted way of framing the issue, but the "attention" required by rewards cards is so negligible as to be irrelevant. I use my Citi Dividend card; when I log into my account to pay my bill, it shows me in a little box how much cash back I have earned, and there is a button to click to claim it.

If that is too much work for some to be worth it, so be it. They have less need for free money than I do, I guess.

And I agree with you: for those of those who are persuaded to make erroneous financial decisions because of how shiny their credit card looks or the warm fuzzies they get when using it -- it's probably not worth it. But neither is ANY credit card for someone like that.

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Post by gouldnm » Mon Mar 15, 2010 3:20 pm

My husband and I each have a Chase rewards card, and it is definitely worth it. In our plan, we can choose from a variety of gift cards including hotels, airlines, restaurants, electronics stores, etc.

A few years ago I cashed in $1200 worth of gift certificates from Best Buy, and got a free laptop.

We just cashed in our points for about $900 worth of Marriott gift certificates. That's based on the last six months' worth of charges.

I think it's a great deal!

The trick is to charge everything, but always pay it off in full every month.

Disclaimer: We got our cards a very long time ago. The great deals we got may no longer be available to new customers.

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Post by chaz » Mon Mar 15, 2010 3:38 pm

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Post by smcgrath12 » Wed Mar 17, 2010 8:44 pm

Totally worth it. We use the Schwab Visa and Amex SPG exclusively. I have not paid for my hotel stays in last 3-4 years with the amount of points I get on SPG (SPG does have a $45 annual fee, though).

Have gotten cards for bonus airline points, cash back, free airport lounge access, in-house credit card points like TY. Read up on FLYERTALK forums and you will not be disappointed (if you see this as a hobby and not as a chore).

There is a theory that cash paying customers subsidize the CC paying customers (for their rewards). Go figure.

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Post by Hat » Wed Mar 17, 2010 11:37 pm

Ron wrote:
ensign_lee wrote:Fidelity's version makes puts the contributions into an IRA. Which is a problem if you're already contributing the max to your IRA.

Big difference.
Uh no. Mine is contributed directly to my taxable MM account :wink: ... While Fidelity advertises the IRA option, there are other ways to get your reward.

I'm "older than dirt", retired, and no longer contribute to any retirement account...

- Ron
With the Investment Rewards version, you can deposit the cash back to a mySmart Cash account. It can then be transferred to any non-Fidelity account.

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Post by letsgobobby » Fri Apr 23, 2010 3:02 am

From 2004-2010 I earned about $15,000 in free travel through Citi Thank You Points. Gravy train has ended... but there are others. Yes, for me, rewards cards are worth it and I wouldn't have it any other way.

The studies say most people spend more with credit cards than with cash. IMO the studies are dated, and most Bogleheads aren't most people. I haven't spent cash in more than 15 years - I use credit cards for every single possible purchase - and I am more likely to feel loose with cash than with plastic. With plastic I know I'll see the bill at the end of the month. cash just... disappears. I normally carry $10-20 in my wallet. It lasts a few weeks now.

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Post by jjg247 » Fri Apr 23, 2010 5:16 am

I have Costco Amex used for Gas and eating out which earns me 3% and everything else goes on Chase freedom Plus which gives me 3% cash back on my top 6 out of 15 categories.

It requires a second of thought as to which card to pick when I purchase something and I "earn" over $1000 a year between the 2 cards. It's easy and saves a nice chunk of dough.

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Post by hudson » Fri Apr 23, 2010 5:24 am

My Penfed Rewards gives me over $200 a year, with no problem as I pay it off.

A big advantage is a cleaner checking account. The 20 transactions per month show up on my online Penfed statement and not my checking account. Balancing my checking account is a breeze.

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Post by cflannagan » Fri Apr 23, 2010 3:19 pm

Experience with reward cards varies widely depending on which bank your reward card is from.

I have used PenFed reward card for years - 5% on gas, 2% on groceries, and 1.25% on everything else. No strings attached - it does not send you the rewards in form of checks, it SUBTRACTS from your monthly bills. NO annual fees. No finance charges if you pay balance in full every month.

Plus, you can set up full monthly autopay plan - linked to your external bank account (like my Bank of America checking account), so I have my peace of mind living off my PenFed reward card and having balance paid in full every month.

On average, per year, I get anywhere between $500-$600 back, which is quite big, at least for me. I "imagine" this as a way of setting funds aside for xmas shopping. ;)

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Post by gw » Fri Apr 23, 2010 4:28 pm

nisiprius wrote: Your attention is not free. Your brain is not free. Your emotions are not free. They are valuable things, not to be traded except for good value in return.
Agreed. I use Chase Freedom for everything because I regard it as completely painless. Every once in awhile, I go to the website to order a $250 check, which I pass along to my checking account when it comes in the mail.

It's not a ton of money. In theory, I get "3% cash back automatically on purchases in the 3 everyday categories where you spend the most each month." In practice, last month I was credited at an overall rate of 1.25%. Restaurants, for example, apparently aren't "everyday." That low rate is somewhat compensated by collecting a $250 check for $200 worth of credits, so the rate goes to something like 1.6%.

I'm sure I could do better with other cards, but this way it really does seem like free money. It increases my effective income by about 30 bps. :)

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Post by linenfort » Mon Apr 26, 2010 7:11 pm

Edit: never mind

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Post by cjackson0 » Mon Apr 26, 2010 7:45 pm

hudson wrote: A big advantage is a cleaner checking account. The 20 transactions per month show up on my online Penfed statement and not my checking account. Balancing my checking account is a breeze.
Yes, but then balancing your credit card statement becomes just as difficult. :lol:

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Post by KCJayhawker » Mon Apr 26, 2010 10:13 pm

hudson wrote:My Penfed Rewards gives me over $200 a year, with no problem as I pay it off.

A big advantage is a cleaner checking account. The 20 transactions per month show up on my online Penfed statement and not my checking account. Balancing my checking account is a breeze.
Whoa, whoa, whoa...people still balance checking accounts?

Also, I'd say it's worth it and NO trouble whatsoever. Last two years I've averaged $1k in cash back. Not to shabby for no hassle.

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Post by mattymcmatt » Mon Apr 26, 2010 11:21 pm

JordanIB wrote:I don't see how it wouldn't be worth it. It's free money.
Ah yes, the credit card companies are just being generous.

I don't use a rewards card because I have heard that the merchant fees are higher with reward cards vs. regular credit cards. So while you may be getting 1% back, the store is paying an extra 2% for the privilege of accepting your rewards card. The profit that the store would be making is instead being sent to a middle-man.

You may think, so what, that's their problem.

Once everyone is using rewards cards businesses will have to make up that extra cost somehow which means prices are just going to go up by more than what you are getting back. In the long-run, we will all lose out while the credit card companies will siphon off more money from our transactions.

Unfortunately, I realise that I am just one individual and my refusal to use rewards cards is probably not going to make a difference.

There is never free money.

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Post by Atilla » Tue Apr 27, 2010 5:42 am

It can add up. We run everything possible through a credit card and have got back $250 so far this year.

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