4 Dumb Reasons For Not Getting A Rewards Credit Card

I use a rewards credit card for practically all my spending to earn cash back and travel rewards.  It’s a fast, secure and convenient way to pay for my daily transactions – big or small.

So that’s why I can’t understand when some people scoff at the idea of using a credit card for their everyday spending.

Here are 4 dumb reasons people use for not getting a rewards credit card:

Rewards Credit Cards Have Higher Interest Rates

Indeed, most of the top rewards cards charge interest of 19% or more (as do many standard, non-rewards credit cards).  But if you carry a balance from month-to-month then a rewards credit card just isn’t a good idea.

The interest rate only matters when you don’t pay off your balance in full every month.  Who cares about the interest rate?  You’ll never pay a dime of interest when you diligently pay off your balance each month.

Once you receive your credit card statement, just set-up an automatic withdrawal from your bank account each month and you’ll never miss a payment.

You Need Too Many Points To Make It Worthwhile

Travel and loyalty programs have been getting a lot of backlash from consumers lately as they devalue points, set expiry dates for your points and impose restrictions on how you redeem your points.

I understand the frustration, which is why I started using a cash back credit card.  With a cash back card, you know exactly what you’ll get from your rewards program.

I use a combination of the Scotia Momentum Visa Infinite and the Capital One Aspire Cash World MasterCard.  Capital One let’s you redeem your points anytime for a statement credit or a cheque.  With the Scotia card, your cash back builds up until November and then gets applied to your account as a statement credit.

This combination can give you $625 cash back per year when you spend $2,000 per month.  That’s a 2.6% return on your spending.

How much do you get back when you use debit or cash?  I thought so.

Rewards Cards Encourage You To Spend More

The theory goes that when you use cash, once it’s gone there’s nothing left for you to spend.  Some say this approach forces you to budget and control your spending – that you’ll feel a twinge of pain whenever you remove cash from your wallet.

When you use a credit card, you’ll go crazy spending because you don’t actually see the money come out of your wallet (or your bank account, like with a debit card).

Related: Do You Use Your Rewards Card To Buy Groceries?

That’s fine, I get it.  But that approach doesn’t work for me.  Whenever I carry cash, it disappears faster than the Leafs three-goal lead in the 3rd period.

I’ll buy a magazine or a chocolate bar, a coffee or a beer.  Once that $20 bill is broken, the toonies and loonies end up in my daughter’s piggy bank, or paying for parking.

The truth is that a credit card is great for budgeting because you’ll get an itemized (and sometimes categorized) list of all your spending every month.  Go back regularly and compare your spending to your budget to keep yourself accountable.

As far as I’m concerned, proper spending habits begin with setting and sticking to a budget.

Cash, debit and credit are just methods of payment.  Which one of these payment methods actually gives you money back?

Premium Rewards Cards Cost Retailers More

The Canadian Federation of Independent Business wants consumers to pay with cash or debit to helps keep prices low.  That’s because Visa and MasterCard ding retailers with an interchange fee every time you pay with a credit card.

The fees range from 1.65% of the transaction cost with a standard credit card, up to 2.71% of the transaction cost with a premium “high-spend” card like the World or World Elite MasterCard.

Here’s a chart that shows the merchant fees for each credit card issued in Canada.

The CFIB says retailers should be able to pass along those charges directly to consumers.  While that may happen sometime down the road, there’s no evidence to suggest that retailers will pass along the savings by lowering prices.

Australia was successful in implementing a credit card surcharge back in 2003, but many retailers treat it as another profit centre as opposed to lowering prices for consumers.

The bottom line is that retailers will always find a way to pass on their costs to consumers in the form of higher prices.

Can you honestly see any retailers discriminating against you because of your chosen method of payment?  Who would refuse a sale in this tough, competitive economic climate because they’ll get charged an extra 0.5%?  Talk about business suicide!

When I go to the grocery store and pay with my Scotia Momentum Visa Infinite card, I’ll get 4% cash back while the store pays 2.15% on the transaction.  A $200 purchase gives me $8 back.  If I used debit or cash, the retailer saves a few bucks, but I’ll get nothing back.

Why not play the game and, as a consumer, come out on the winning side for once?

Final thoughts

It took me a while to ‘get’ what rewards credit cards were all about.  But once I started using them to my advantage I started maximizing my cash back and loyalty points.

Rather than spending $14 per month for unlimited debits, I’ve been earning $50 per month or more with my cash back credit cards.

Related: Which No-Fee Cash Back Credit Cards Offer The Most Value?

For those who say it isn’t worthwhile, think about how much time and effort you spend looking for the best interest rate on a savings account and how much interest you’ll actually earn in a year.

Put $10,000 in a savings account at 2% interest and you’ll earn just $200 per year.

So forget all those dumb reasons you’ve heard for not getting a rewards credit card and start putting some cash back in your pocket.

5 Responses to 4 Dumb Reasons For Not Getting A Rewards Credit Card

  1. In most cases, rewards are only earned when spending; balance transferring or cash withdrawals almost never count. From the beginning of 2011 the rules on where your credit card repayments are allocated changed.

  2. Another reason people use for not getting a rewards credit card is that some of the top cards come with an annual fee.

    Some people refuse to pay an annual fee. I think that’s a stubborn, and sometimes ignorant, excuse. You need to do the math to ensure you’re maximizing your rewards points net of fees.

    For example, if you can earn $300 a year with a no-fee cash back card like MBNA’s Smart Cash, but you could earn $450 a year by switching to the Scotia Momentum Visa Infinite, you’d still be ahead by $51 a year even after paying the $99 annual fee.

  3. Hello,

    Can you please list some of the better cards that categorize spending for you.

    Thanks for an informative article.

    • @Khaled – I mainly use two cards, the Scotia Momentum Visa Infinite and the Capital One Aspire Cash World MasterCard. They both do a good job categorizing spending into grocery, gas, merchandise, dining, etc.

      I had the MBNA Smart Cash Card for a few years and it also did a good job categorizing expenses.

      I think most cards do a good job of this.

      • Thanks,

        I am currently overseas and the “premium” cards that I use do not provide categorization.

        Something to look forward to when I get back to Canada.