I've noticed lately that the credit card companies are using a new tactic (or at least new to me). They're doing things for cardholders that on the surface appear to be helpful in order to make you think that they're on your side. They're you're friend, and they're here to help you!
I've seen a Discover Card commercial lately where they talk about how we should all use their card because they can help you identify problem spending areas. By using your credit card, you're getting a built in easy to do budget and spending tracker! Budgets are a great idea, but usually are only helpful if you're the one doing it, and you have a handle on where your money is going. Most of the time people who are relying on their credit card as their spending tracker are the same ones who have a hard time using a credit card responsibly.
I was opening my mail last night when I found a nice little ad touting the benefits of my Chase Rewards credit card. It was titled:
Here Are 5 Tips To Help You Make The Most Of Every Dollar
(along with a scan of the title):
Wow, isn't that nice of them? They're trying to help me make the most of my money, and in fact, they want to give me free money! The credit card companies care about helping me save (yeah right)! Here's how they plan to help me:
- Use Your Card Wherever You Go: 1% cash back on all eligible purchases! No purchase too small! Get cash back on that bag of Doritos you just bought on credit! Never mind the fact that when you use a credit card you're very likely to spend more than if you had just paid cash. There is just something about using cash that hurts more. Dun and Bradstreet found that on average people end up spending 12-18% more when using a credit card! By way of example, when McDonald’s started taking credit cards for purchases, the average purchase went from $4.50 up to $7.00! NPR had a show a while back about why people spend more when using credit. Listen here.
- Make Chase Rewards Plus Your Favorite Place To Shop: Get up to 10% bonus cash when you shop at Chase's online shopping portal! Hey you were going to buy that basket of fine wine and cheese anyway, right? You may as well save 10% on it too! While you're at it buy that pair of new shoes, and that Wii game! Are they really trying to save me money, or just buy more stuff that I don't need?
- Pay Bills Using Your Card: You're paying everything else on your credit card, right? You may as well start paying your bills on your credit card too! You don't want to miss a payment and get your water turned off do you? Budgeting for regular expenses is for suckers when you can just pay it on credit, and save!
- Add An Authorized User… At No Extra Cost!: Adding an authorized user to an account is usually a bad idea (there is reason why they can't get their own account), and a good way to run up your credit card bills. Hardly making the most of your every dollar! This one should be filed under “ways to start going into debt even quicker“. Shouldn't adding an authorized user be free anyway? In fact, they should be paying us to add an authorized user!
- Feel Secure With Your Upgraded Benefits: Here's where they throw in some nice features like price protection, identity theft insurance, rental car insurance, theft and damage protection, extended warranties, etc. The problem is that most people, even when they're aware of the extra coverages, never actually use them! They're nice features, but not usually something that you're going to use. Often, when you do want to use the extra coverage, the eligibility is defined very narrowly, and you may not be able to make a claim anyway. If you do use these features make sure that you know the fine print in case you do end up needing them.
Out of all of those, the only one that really makes any sense to me is the using the extra warranty coverage or theft coverage, but even those benefits are minimal when you take into account the added risk you're taking on by using the credit cards. The rest of the company's ways to “help you make the most of your money” are actually just ways they're getting you to spend more money with them. The more you spend, the more they make in interest!
A lot of people think that they can pull one over on the credit card companies, and get ahead by taking advantage of all the cash back schemes and money back cards. When it comes down to it, though, most won't win this way. Credit card companies aren't stupid, they do these cash back cards for a reason. These cards make them more money by encouraging debt, and by encouraging the normalization of the use of credit. When people use rewards and cash back cards, they end up spending more money, and often these cards have higher interest rates wiping out any gains they might have made.
In the past people wouldn't even dream of using credit for small purchases. But today we think nothing of using credit cards for everything from a pack of gum to a flat screen TV. The more we spend on the cards, the more the credit card companies make.
So next time you get one of those friendly ads that are telling you how to save money, be wary. The credit card companies are not your friend, they just want your money.