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October 21, 2009

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I have also noticed that all those products you can "buy" with your reward points are always worth less than the cash you can get for your reward points.

What's up with that? Do any people actually prefer the overpriced products? Even the coupons and gift cards aren't worth more than the cash back. So weird.

I am always scared to use these cards as they sometimes create a messy situation. I always get my credit card bill more than what i expect. The credit card provider puts some extra charges. n order to hide that they are providing some offers like cash back offers.

I have never heard of a millionaire getting that way by making 2% off his spending. They usually get that way by making 10% on their saving.

The only case I can see where having a rewards card would be good is when you must use a card to be reimbursed at work for multiple trips per year. As you get up in the thousands of dollars, as long as you pay off the balance each month, you will make a little cash.

I never heard of a millionaire not trying to get a discount on their purchases.

Making that 10% on $500/year in cash rebates does actually add up to $1M over 55 years.

Obviously this is not a good strategy for Steven above or maybe, taken to the extreme, even anyone with a credit card limit larger than their liquid assets. But I pay off my balance automatically each month and can do a lot more damage to my overall finances with my debit card than I can with my credit card, so I don't really understand the fear of them among the financially literate.

I love using our two Discover cards for everything we can for all the reasons stated in the post. We use the Discover More card for everything but car expenses (like gas) and get 1-5% cash back. We use the Discover Open Road card for gas and car maintenance and get 5% cash back. We also have a Mastercard that earns 1% cash back after spending $25,000, but we only use it for places that don't take Discover...it comes in handy for my husband's graduate school expenses.

Plus, if we know we are going to a specific place or need a quick gift, we can maximize our cash back by purchasing gift cards from Discover...we can buy a $25 gift card for several places we use for $20. It isn't a huge deal, but we like it. This only works well if you were going to spend money there anyway, otherwise it would be better to just apply the cash back to your bill or have it deposited into your checking account.

We have a very stable, set budget and have never carried a balance. If you have a hard time controlling credit expenditures or think you will carry a balance, do not get a credit card...5% cash back will not cover the finance charges.

@Crystal

FYI...there are a host of cards out there that pay 1% straight without having to spend $25,000 (ridiculous amount for a meager cashback rate). If you search even a bit more, there are cards that pay 2% back regardless. The Schwab card is one.

@Eric
Yes, we know. That Mastercard has the highest credit available among our cards since I got it first when I was 18. Other than these recent graduate school expenses, we only use it for our electricity bill and the occasional restaurant that doesn't accept Discover (less than $200 total a month). It is used more as a benefit to our credit rating than anything else. I was just fully disclosing all the credit cards we use and their specific benefits...

I looked into the Schwab card after reading this post, but what I found at http://www.filife.com/reviews/charles-schwab-bank-invest-first-visa-signature-credit-card says that, "Card holders earn 1 point per dollar spent which is converted into cash at 2% and deposited every month into an associated Schwab One Brokerage account. Card holders do not need to have a brokerage account to accrue points, but must have an account in order to earn the rewards."

We do not plan on ever having a Schwab One Brokerage account, so the points would be useless to us.

I also looked into the American Express TrueEarnings card that gives 3% cash back for gas and restaurants, 2% for travel, and 1% everywhere else. But, it seems to require a Costco membership since the cash back comes as a Costco cash coupon. I'm a Sam's Club fan myself. Plus my parents had a several bad American Express experiences when I was younger and that has stuck with me.

@Crystal: You can open a Schwab Brokerage fairly easily and needn't maintain a minimum or ever use the account and you don't have to pay maintenance fees. Trasferring money out of the account is fairly painless.

I'll admit bias, as I have a Schwab CC, Checking, and Brokerage account, and this trifecta has worked quite well for me.

Added bonus to Schwab card, especially if you travel, no foreign transaction fees.

Some credit card companies actually give money back to your alumni association if you get that card (in addition to the cash back).

@Eric and Drhilarius
I'll take a closer look from home at the Schwab One Brokerage account...maybe it can be our main backup and we'll keep the Mastercard open with a few small charges a month.

Does anyone know how bad your credit would be hurt if you close a credit card that has 1/3 of your available credit?

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