Over the weekend I saw a credit card commercial that had me shaking my head.
In the commercial, two woman are having lunch at an outdoor restaurant when one woman suggests the others’ friends are simply inviting her to events so they can pay with their credit card and earn credit card rewards points. When the bill comes, woman #1 whips out her credit card and offers to pay. The commercial ends with the two staring at each other, one wondering if she is being used, the other hoping her friend won’t figure it out.
Seriously, do credit card companies think we’re that stupid?
The implication being that the credit card’s rewards progam is so good that you’ll want to buy things for your friends to earn as many points as possible. The commercial is certainly meant to be humorous, but let’s not get confused here.
Credit card companies want you to to over spend.
This point can’t be made any more obvious than in this commercial. The more you spend with their card the more money they make, and reward programs are designed to entice you to favor one credit card over another. Retailers have to pay for each credit card transation, but the real money is in the interest you pay on your revolving balance.They’re depicting a credit card culture where it’s not only OK to buy yourself things with your credit card, but it’s normal to pay for your friends, too. What they don’t show is the person later opening their credit card bill and being shocked at the balance, realizing that they’ve overspent, only making the minimum payment.
I don’t know about you, but I don’t have a “Buy Stuff For My Friends” budget category.
They’re trying to shift your focus away from how much money you’re really spending, and towards the cool reward points you’re earning. Credit card reward programs give you either cash back, or points that can be redeemed for products. But remember that in every case the rewards are teeny, tiny, minute percentage of the total spent.
News flash: If you can’t pay your bill in full each month, double digit interest + single digit rewards program = you lose.
The good news is, you can outsmart credit card companies. You can reap the benefits of their rewards programs without flushing interest payments down the toilet by following these two steps:
- Before swiping your card, ask yourself the simple question, “Do I have the cash to pay for this right now?” If the answer is no, practice safe spending and keep your card to yourself.
- If the answer is, “Yes,” then go ahead and swipe. Then put the cash in a lockbox, attach it to a cement block and drop it to the bottom of a very deep lake until your bill arrives. Translation: DO NOT spend it.
Ok, so it’s a little bit more complicated than that. My point is that following the above two steps is extremely difficult for many people. I find #2 to be down right impossible. That’s why I’m striving to lead a life free of credit cards. Cash and debit card only for this guy.
So if I ask you to lunch, you can be assured it’s simply because I enjoy your company.